<PAGE>

                  UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, D. C. 20549
                                          
                                          
                                     FORM 10-K


 X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
---  ACT OF 1934

                    FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
---  EXCHANGE ACT OF 1934

         FOR THE TRANSITION PERIOD FROM _______________ TO _______________.
                                          
                           Commission file number 0-13244
                                          
                               GATEFIELD CORPORATION
               (Exact name of registrant as specified in its charter)
                                          
DELAWARE                                                              41-1404495
(State of incorporation)                    (I.R.S. Employer Identification No.)
                                          
47100 BAYSIDE PARKWAY, FREMONT, CALIFORNIA                             
94538
(Address of principal executive offices)                           (ZipCode)
                                          
Registrant's telephone number, including area code:              (510) 623-4400 

Securities registered pursuant to Section 12 (b) of the Act:     NONE

Securities registered pursuant to Section 12 (g) of the Act:     COMMON STOCK,
$0.10 PAR VALUE PER SHARE
                                          
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  x    No 
                                       ---      ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The approximate aggregate market value of voting common equity stock held by
non-affiliates of the registrant on April 8, 1999, based upon the closing price
of the Common Stock on the Nasdaq Unaffiliated Over the Counter Bulletin Board
(the "OTCBB") on such date was approximately $42,204,595.

The number of shares outstanding of the Registrant's Common Stock, par value
$.10 per share as of April 8, 1999 was 41,545,531.

                        DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days after the end of December 31, 1998, are incorporated
by reference into Part III hereof.

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                                        PART I

THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT
PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED INCLUDING STATEMENTS REGARDING THE COMPANY'S
EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION
AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "FACTORS AFFECTING FUTURE RESULTS," INCORPORATED BY REFERENCE INTO
ITEM 7 OF THIS ANNUAL REPORT, AS WELL AS THOSE DISCUSSED IN THIS SECTION AND
ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED IN THE COMPANY'S SECURITIES
AND EXCHANGE COMMISSION FILINGS.

ITEM 1.   DESCRIPTION OF BUSINESS

OVERVIEW

     GateField Corporation designs, develops and markets high-density,
high-performance programmable logic solutions and related development software.
The company was originally a division of the Zycad Corporation, a leader in the
development, manufacturing and marketing of design verification tools and
services. Zycad was founded in 1981 and became a public corporation in 1984. The
GateField division of Zycad was formed in the third quarter of 1993 to research
and develop a new and innovative semiconductor logic product: a flash
technology-based, high-density field programmable gate array (FPGA) device.
During 1997, Zycad transitioned from a provider of high-performance verification
products to a provider of FPGA products based on the GateField division's
research and developer of an application specific integrated circuit ("ASIC")
technology called ProASIC-TM-. 

     Zycad introduced and first shipped its 0.72-micron products in 1997. This
transition required the sale of several of Zycad's assets, including: its stock
ownership in QSS Inc.; products and assets relating to its verification product
line, including its rights, title and interest in hardware and software
simulation products; and the assets related to the semiconductor test software
product line. In addition, Zycad sold its maintenance division for the
verification products to Zycad TSS, Inc. 

     In October 1997, a new management team was put in place and Zycad was
renamed "GateField Corporation".  A month later, GateField announced a strategic
alliance with Siemens Aktiengesellschaft. In this alliance, Siemens licensed the
GateField ProASIC technology for use in nonstandard FPGA products and purchased
GateField's common stock and warrants for $3.25 million.  In addition, Siemens
agreed to provide GateField with early access and foundry service for  Siemens'
advanced embedded flash technology for GateField 0.25-micron products and below.
GateField and Siemens concluded a foundry agreement in June 1998. 

     In August 1998, the company entered into a strategic alliance with Actel
Corporation, under which Actel received exclusive, worldwide distribution rights
to GateField's 0.25 micron and below standard ProASIC products. Actel also
purchased the assets of GateField's Design Services product line as well as $3
million of the company's Series C Preferred Stock, which is currently
convertible into an aggregate of  2,000,000 shares of GateField common stock.

     GateField's products--flash-based FPGAs trademarked as ProASIC--are 
based on two proprietary and patented technologies: a flash-based switching 
element and a fine-grained, gate array-like ProASIC architecture. The company 
believes that the principal advantages of GateField's products over 
alternative SRAM-based and antifuse devices are: smaller chip size for the 
same geometries; reprogrammability and non-volatility; and the ability to use 
a standard electronic design automation (EDA)  ASIC design flow. 

               A RELATIVELY FASTER AND SMALLER CHIP. The flash-based switch 
               allows GateField to make circuits that provide higher 
               performance in a smaller size and, therefore, are generally 
               less costly than comparable designs using alternative switch 
               technologies. For comparable manufacturing device geometries 
               and for the same device complexity and capability, the 
               GateField die size is only one-fourth to one-third the size of 
               competing FPGAs.
               REPROGRAMMABILITY AND NON-VOLATILITY. Unlike antifuse-based 
               devices, GateField's devices are field reprogrammable, which 
               means a designer can change the device program prior to shipment 
               or even change the program in the field to incorporate product 
               changes and enhancements. Unlike SRAM devices, GateField's 
               devices are non-volatile; that is, they do not lose their design 
               and have to be reprogrammed if the system loses power or is 
               turned off.
               COMPATIBILITY WITH EXISTING EDA. The flash-based switch 
               facilitates the ProASIC architecture, which allows designers to 
               use their existing industry standard EDA high-level design tools 
               and to accurately simulate the programmed ProASIC device 
               performance. 

     GateField's products are designed to provide high integration, fast 
time-to-market and fast time-to-volume for electronic equipment manufacturers 
in the networking, telecommunications, computer, peripheral, industrial 
control, instrumentation and 

<PAGE>

consumer markets. GateField plans to sell and market its 0.25 micron and 
below ProASIC products through its strategic alliance with Actel. Actel, the 
third largest FPGA supplier in the world, will give GateField access to a 
large and diverse customer and design software user base. Siemens has agreed 
to manufacture GateField's 0.25-micron product in its production facility in 
Dresden, Germany. GateField's current ProASIC 0.72-micron products are 
fabricated by strategic partner Rohm Co. Ltd. in Kyoto, Japan.  GateField is 
currently completing initial testing of the 0.25-micron product.  It began 
sampling initial customers in the first quarter of 1999.  Subject to 
exclusive and non-exclusive license rights granted to Siemens, Actel and 
Rohm, GateField continues to maintain rights to its intellectual property for 
its ProASIC technology and products, which allow it to license this 
technology for the emerging embedded reprogrammability market. 
     
     GateField's corporate office is located at 47100 Bayside Parkway, 
Fremont, California 94538. The company's telephone number is (510) 249-5757, 
and its Web site is http://www.gatefield.com. 

INDUSTRY BACKGROUND

     The large and rapidly growing logic market is served primarily by 
low-density, standard, transistor-transistor logic circuits (TTLs) and 
application specific integrated circuits (ASICs). TTLs are standard logic 
circuits that can be purchased "off the shelf" and interconnected on a 
printed circuit board. ASICs are customized or customizable circuits that 
offer electronic system manufacturers the benefits of higher levels of 
circuit integration, including improved system performance, reduced system 
size and lower system cost.

     ASICs include conventional gate arrays and field programmable gate array 
devices (FPGAs). Conventional gate arrays are customized to perform their 
desired logical functions at the time the device is manufactured. They are 
manufactured with fixed, nonprogrammable logic and are subject to the risks 
associated with long manufacturing cycles, inventory obsolescence and an 
inherent inability to change the logic design. 

     FPGAs, on the other hand, are manufactured as standard devices 
customized by the user at the designer's desktop or at the end of the 
manufacturing line by the customer using the FPGA supplier's programming 
systems. Design changes can typically be implemented in as little as a few 
hours, as compared to several weeks for conventional gate arrays. FPGAs costs 
can be attractive in low volumes because they eliminate the non-recurring 
engineering costs and expenses and increased development time associated with 
the redesign of conventional gate arrays. FPGAs are being used by a growing 
number of electronic system manufacturers in response to increased demand for 
product differentiation, time-to-market pressures and desired manufacturing 
flexibility. 

     The wider use of more complex FPGAs has been limited by price and 
performance factors. On current architectures, programming elements based on 
static random access memory (SRAM) technology occupy relatively large amounts 
of area within an integrated circuit, which tends to increase the overall 
size and cost of each integrated circuit. In addition, on current 
architectures, the size of SRAM programming elements limits the number of 
interconnect points in an integrated circuit, which in turn, limits 
flexibility and utilization.

     Before FPGAs can be programmed, a designer must define the function, 
verify the design and lay out the integrated circuit using EDA design 
software. With increased integrated circuit complexity, designers are turning 
to hardware description languages (HDLs), also known as high-level 
description (HLD), for their electronic system and integrated circuit 
designs. HDL methodology permits the designer to describe the integrated 
circuit functions at an abstract level and to verify the performance of logic 
functions at that level. The HDL can then be fed into logic synthesis 
software that converts the abstract or high-level description into a 
gate-level representation equivalent. After a gate-level representation of 
the logic function has been created and verified, it must be translated or 
"laid out" onto the generic logic elements of the FPGA. This is achieved by 
placing the logic gates and routing their interconnections, a process 
referred to as "place and route." 

     The transition to the use of HDL for ASIC designs and FPGAs, in 
particular, presents an opportunity for GateField. The effectiveness of logic 
synthesis and place and route tools varies considerably with different 
programmable logic circuit architectures. Because the HDL EDA tools were 
initially optimized for conventional gate arrays, and GateField's ProASIC 
product architecture is similar to a conventional gate array, GateField's 
devices provide higher gate utilization, more accurate device performance 
simulations and more effective synthesis than is possible with other FPGAs. 
Thanks to our ASIC-like architecture, systems and electrical device engineers 
using their standard ASIC design methodology and tools can transfer a 
successful design to the more economical GateField FPGA in a matter of hours 
and save development time and production costs.

     Electrical system manufacturers are requiring improved functionality, 
performance, reliability and lower cost. These are often addressed through 
the use of components that integrate ever-larger numbers of logic gates onto 
a single integrated circuit. In addition, global competition is shortening 
product life cycles and requiring more frequent product enhancements. 
GateField's ProASIC standard FPGA products combine the high logic density, 
ease of use and predictable performance typically associated with 
conventional gate arrays with the time-to-market advantages of a non-volatile 
and reprogrammable logic product.


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COMPANY STRATEGY

     PROGRAMMABLE ASIC PRODUCTS. Global competition is forcing electronic 
system manufacturers to bring increasingly complex products to market within 
shorter and shorter development cycles while at the same time shrinking 
product life cycles. This competitive environment creates a constant demand 
for new logic devices with increased performance and functionality at lower 
and lower costs. 

     To serve this need, FPGAs are becoming increasingly complex--and yet 
also quick and easy to use. The primary advantage of FPGAs over competing 
solutions is that they allow system designers to experiment, iterate and 
optimize their designs in a relatively short amount of time and at a lower 
cost. FPGAs can often be designed and verified in a few days as opposed to 
several weeks or months for gate arrays. The time-to-market advantage is 
significant: As soon as the customer has programmed the FPGA, the customer's 
design is finalized and the customer can move immediately into production 
with the FPGA. 

     The customer also has a lower all-inclusive per unit cost of production 
for small to medium volume applications as compared to gate arrays. Total per 
unit cost is inversely related to volume for a custom integrated circuit (IC) 
because of the high fixed costs of non-recurring engineering, layout and mask 
costs. 

     All the advantages of programmability are amplified by 
reprogrammability. Reprogrammability allows an electronic systems 
manufacturer to shorten its own product life cycles and reduce 
inventory-carrying costs. It also allows inventory to be re-configured over 
and over as enhancements in the manufacturer's system design evolve. This 
further saves development time and costs over several generations of 
products. 

     GateField's strategy is to use flash technology to provide standard 
reprogrammable logic products that combine the high logic density and 
non-volatility typically associated with conventional gate arrays with the 
reprogrammability and the time-to-market advantages of FPGAs. Moreover, 
GateField products offer a significant cost advantage because the die size 
for equivalent complexity and performance is only one-fourth to one-third the 
size of SRAM FPGAs using the same manufacturing geometries or design rules. 
Management believes the performance, density and cost advantages of the 
GateField FPGAs combined with their reprogrammability and non-volatility (all 
of which scale with the ever-shrinking semiconductor manufacturing 
technology) provide our customers--and our company--with what GateField 
believes is a sustainable competitive advantage.  

     ASIC DEVICE ARCHITECTURE. The company's strategy is to provide products 
that emphasize predictable system performance, device utilization, design 
portability and reuse, and, ultimately, increased designer productivity. 
GateField's patented ProASIC architecture allows its products to easily 
integrate into industry standard ASIC design flows because of the 
architecture's similarity to standard gate array technology. Consequently, we 
believe our products provide an easy migration from a lower-volume and 
higher-cost FPGA application to a higher-volume and lower-cost conventional 
gate array or custom ASIC design. 

     GateField's ProASIC flash-based technology also eliminates the need for 
the additional ICs required for FPGA configuration, freeing the system 
designer from special design considerations related to board design and 
system initialization procedures required for SRAM FPGAs. This further 
reduces cost and increases designer productivity. GateField believes these 
ProASIC product attributes will appeal to gate array and ASIC designers 
within established electronic system companies who are already familiar with 
high level design methodologies as well as an emerging group of programmable 
logic designers who are starting to use higher density programmable logic 
devices.

     SOFTWARE TOOL.  Our development software products use industry standards 
and are designed to be integrated with industry standard EDA tools. GateField 
believes the industry's acceptance of its ProASIC devices will be enhanced if 
the customer can use GateField's software tools along with the customer's own 
preferred design methodology and its chosen "best of breed" open EDA tools 
and design methodology to design systems. 

     CONDUIT FOR INTELLECTUAL PROPERTY PROLIFERATION.  The Company believes 
that the ASIC design flow and combination of high capacity, reprogrammability 
and non-volatility in GateField's ProASIC devices offer significant 
advantages to intellectual property providers. Using our devices, they can 
efficiently verify their intellectual property in silicon and securely 
deliver their intellectual property to customers. Each ProASIC device holds 
its own electronic signature and can be configured to effectively preclude 
copying and reverse engineering. We believe these key features provide a 
secure silicon medium for intellectual property delivery by intellectual 
property suppliers, and GateField and Actel intend to include such companies 
in their direct marketing efforts. 

     TECHNOLOGY LICENSING AND PRODUCTION RELATIONSHIPS. In addition to the 
sale of its standard ProASIC products, GateField will seek to sell 
nonexclusive licenses to its ProASIC technology to major semiconductor 
companies as their preferred solution for embedded, reprogrammable, 
system-level-integration (SLI) integrated circuits. GateField believes that 
the small size, non-volatility and reprogrammability of its patented 
flash-based switch and its patented ProASIC architecture support of the 
standard ASIC design flow provide a competitive advantage for use of the 
ProASIC technology for reprogrammable SLI ICs. We plan to position ProASIC 
technology as the technology of choice to serve this reprogrammable IC market 
need. GateField has licensed its technology to both Siemens and Rohm for 
embedded reconfigurable ICs. See "License Agreements."


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<PAGE>

TECHNOLOGY

     PROCESS. GateField's current products use an established two-layer,
0.72-micron flash manufacturing process. These devices are manufactured for
GateField by Rohm in Kyoto, Japan. We are currently completing initial testing
of our 0.25-micron product.  The joint Actel/GateField marketing team began
sampling initial customers with engineering product samples of its 0.25-micron
product in the first quarter of 1999. The company has entered into an agreement
with Siemens to manufacture the new 0.25-micron product. 

     ARCHITECTURE. The patented design of the ProASIC product architecture is
designed to allow GateField to achieve high density; meet performance goals;
obtain predictable gate utilization and performance; and support industry
standard ASIC design flows. The architecture consists of switches that program
the chip; the associated routing, clocking and power grids; and the underlying
logic cell that provides the programmable gates. The ProASIC architecture takes
advantage of the very small switch size (as compared to competitive SRAM or
antifuse approaches) as well as its reprogrammable and non-volatile features.
The company anticipates that improvements in the architecture will drive
performance enhancements with each subsequent product generation. 

     EMBEDDED MEMORY BLOCKS. In addition to the flash memory/switch combination,
which is used to configure the GateField device, embedded static memory blocks
are an important feature of GateField's standard ProASIC products. GateField's
current GF260F180 0.72-micron product and all of the planned 0.25-micron
products will have this feature. Depending upon the product, a number of memory
blocks, each containing 256 x 9 bits of memory, are available to support a
variety of possible memory configurations. Each block may be programmed as an
independent memory or may be combined, using dedicated memory routing resources,
to form larger, more complex memories and FIFO structures. In addition,
GateField's 0.25-micron product architecture allows memory paralleling to form
memories of up to 11 independent memory ports (10 read, 1 write port). This
approach is designed to provide GateField products with a flexible and efficient
high performance embedded static memory for both Dual Port and FIFO memory
requirements.

PRODUCTS

     GateField currently offers a range of 0.72-micron, flash-based 
programmable logic integrated circuits and associated development software 
and hardware. These integrated circuit products are aimed at ASIC prototyping 
applications and intellectual property delivery. The current ProASIC devices 
are available in a wide variety of plastic and ceramic package types. 
External configuration storage devices are not needed due to the 
non-volatility of flash-based ProASIC devices. Devices can be programmed 
either by plugging them into the company's ASICmaker-TM- programming console 
or a system board through the In-System-Programming (ISP) interface. 
GateField's development software tools facilitate the design process for its 
integrated circuits. These existing products have allowed GateField to sell 
product and software to support approximately 150 design wins with 
approximately 100 customers.  Almost all of these customers have utilized the 
0.72-micron products for ASIC prototyping or IP delivery in low quantities.   
In 1998, the company stopped actively promoting the sale of its 0.72-micron 
product. The company intends to terminate sales of this product in the second 
quarter of 1999. The company is currently completing initial testing of its 
0.25-micron product and related software. The joint Actel/GateField 
marketing team began sampling initial customers in the first quarter of 1999. 
GateField has plans for a four-product family, which will range from 20,000 
usable ASIC logic gates and 14,000 bits embedded SRAM to 100,000 usable logic 
gates and 65,000 bits of embedded memory. These devices are scheduled to be 
offered in multiple plastic quad flat packages and ball grid array packages. 
Production software and device programmer is expected to be available in the 
second quarter of 1999. Supporting software enabling customers to begin their 
designs became available in the first quarter of 1999. 

PRODUCT DEVELOPMENT

     GateField believes that its success will depend in part on its ability to
continue to enhance its existing products, develop new products and lower the
price and improve the performance of its products in a timely manner.
GateField's product development activities are primarily directed toward the
design of new programmable ASIC solutions, the use of advanced semiconductor
manufacturing processes and the development of new software tools. 

     The company recently focused its research and product development 
efforts on a new product family based on a 0.25-micron flash process and 
enhanced place and route tools. Research and development expenses in 1998, 
1997 and 1996 were $5.5 million, $7.9 million and $15.8 million, respectively. 
To continue this level of research and development, the company will need to 
attract and retain highly skilled engineering personnel. There can be no 
assurance that the company will be successful in attracting and retaining such 
personnel in the future. 

     GateField has in the past, and may in the future, experience delays in 
new product development. There can be no assurance that the company will be 
successful in developing and marketing the 0.25-micron product, or future 
enhancements or new products that respond to technological change, evolving 
industry standards and changing customer requirements; that the company will 
not experience difficulties that could delay or prevent the successful 
development, introduction and marketing of these future products or product 
enhancements; or that its new products or product enhancements will 
adequately meet the requirements of the marketplace and achieve any 
significant degree of market acceptance.


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<PAGE>

     Failure of the company, for technological or other reasons, to develop 
and introduce new products and product enhancements in a timely and 
cost-effective manner would have a material adverse effect on the company's 
business, financial condition and results of operations. In particular, the 
company is currently completing initial testing of its 0.25-micron product, 
which is being manufactured by Siemens. GateField's failure to timely and 
cost-effectively develop and commercialize its 0.25-micron products would 
have a material adverse effect on the company's business, financial condition 
and results of operations. 

     Complex products, such as the company's 0.25-micron product, may contain 
undetected or unresolved defects when first introduced or as new versions are 
released. There can be no assurance that, despite testing by the company, 
defects will not be found in new products, including the company's 
0.25-micron product, or new versions of such products following commercial 
release. This could result in loss of market share, delay in or loss of 
market acceptance or product recall. Any such occurrence could have a 
material adverse effect upon the company's business, financial condition and 
results of operations.

MANUFACTURING

     GateField's current ProASIC products are manufactured on a 0.72-micron 
EE/Flash process by Rohm in Kyoto, Japan.  The assembly of GateField's 
current products is performed by ANAM Semiconductor, Inc.  in Korea. 
GateField performs wafer and finished goods testing in Fremont, California. 

     GateField's 0.25-micron products are expected to be manufactured by 
Siemens Aktiengesellschaft in its new fabrication facility located in 
Dresden, Germany. GateField has designed its technology and product to be 
manufactured on Siemens' standard production C9FL Flash process. Siemens also 
has agreed to perform wafer die testing. GateField entered into an agreement 
with Siemens in June 1998 to perform these services. 

     The GateField/Siemens alliance gives GateField access to Siemens' 
proprietary 0.25-micron flash technology for the 0.25-micron product. Test 
silicon results have confirmed that GateField's patented flash memory 
cell/switch combination and its high density programmable structures work in 
Siemens' standard embedded flash process.  There can be no assurance, 
however, that such products can be manufactured  in large volumes with 
acceptable yields. Assembly and the final testing of finished goods is 
expected to be performed by third party assembly and test subcontractors, 
such as Anam. 

     GateField outsources the manufacture of its products to independent 
contractors on a purchase order basis. The company also relies upon a limited 
number of suppliers who can produce its products to its specifications and in 
the quantities and quality it desires. This strategy minimizes capital and 
management resources dedicated to manufacturing and is intended to take 
advantage of the strengths of the company's strategic partners: manufacturing 
knowledge and economies of scale in wafer fabrication, testing, assembly and 
quality assurance. 

MARKETING, SALES AND CUSTOMERS

     GateField and Actel have a strategic alliance that gives Actel exclusive 
sales and marketing rights to GateField's 0.25-micron product and below. In 
addition, the alliance provides GateField with access to a direct sales and 
field application engineering (FAE) team that is approximately ten times 
larger than the sales and FAE force that GateField had prior to the alliance. 
Being one of the largest FPGA suppliers in the world, Actel provides 
GateField with access to a large customer and design software user base. In 
connection with the Actel alliance, GateField terminated its entire sales and 
FAE force. Consequently, the company is highly dependent on the marketing 
efforts and success of Actel's sales force. If Actel were to fail to perform 
under the Product Marketing Agreement or if the agreement were to be 
terminated, GateField would be required to rebuild its sales force, which 
would require a significant amount of time and resources, and the company's 
business and financial condition would be adversely affected.

     The Product Marketing Agreement with Actel contains certain GateField 
milestones relating to the development schedule and manufacturing costs of 
the .25 micron product family.  The agreement also contains Actel milestones 
with respect to the marketing and sale of the .25 products (including certain 
revenue targets).  GateField currently anticipates that it will fail to meet 
certain of its milestones relating to the cost of manufacturing one of the 
 .25 products. If GateField fails to achieve such cost milestones, Actel may 
be relieved of its milestone obligations under the Product Marketing 
Agreement and may have the right to assume control over GateField's 
operations relating to the manufacture of such product.  Such loss of control 
could divert resources from other GateField development efforts and disrupt 
the company's development efforts with respect to the .25 product family.  
Also, the termination of Actel's milestone obligations would lessen the value 
of the Product Marketing Agreement to GateField.  Such consequences of 
GateField's failure to achieve its milestones could have a material adverse 
effect on GateField's business, financial condition and results of operations.
     
     In addition to marketing its next generation products through the 
company's alliance with Actel, GateField seeks to license its technology for 
embedded applications with an upfront fee license and an ongoing royalty. 
GateField has entered into licensing agreements with Siemens and Rohm.   The 
company markets its technology for embedded applications directly to 
potential licensees.  See "License Agreements."
     
     During 1998, Siemens accounted for 22% of consolidated revenues.  During 
1997 and 1996, one customer, Intel Corporation, accounted for 16% and 10% of 
consolidated revenues, respectively.

COMPETITION

     The semiconductor industry is intensely competitive and characterized by 
rapid technological change, rapid rates of product obsolescence and price 
erosion resulting from both product obsolescence and price competition. As a 
new entry in the high-end programmable logic market, GateField competes 
directly with a number of well-financed, profitable and fast-growing 
companies that


                                          5
<PAGE>

devote a significant portion of their resources to new product development and
existing product enhancements. These companies have substantially greater
financial, technical and marketing resources than GateField has. 

     GateField's current competitors include Xilinx, Inc., Altera Corporation,
Actel Corporation, Lucent Technologies Inc., Advanced Micro Devices Inc., Vantis
subsidiary, among others. The company expects that as the dollar volume of the
programmable logic market grows, this market will become increasingly attractive
to powerful, established companies as well as newcomers to the market. 

     The principal factors upon which the company competes in the programmable
logic marketplace include product performance and features, the integration
capacity and flexibility of the individual circuits, the capability of software
development tools, quality and reliability, pricing, technical service and
support and the ability to respond quickly to technical innovation. GateField
believes it can compete favorably with respect to these factors, although it may
be at a disadvantage in comparison to larger companies with broader product
lines and internal wafer fabrication capabilities.

LICENSE AGREEMENTS

     In October 1997, GateField Corporation and Siemens Aktiengesellschaft
entered into a strategic alliance. Under the agreement, Siemens licensed
GateField's ProASIC technology to be embedded into Siemens' system level
integration products, and GateField gained access to Siemens' 0.25-micron flash
technology. In June 1998, GateField entered into a long-term agreement with
Siemens to manufacture and test ProASIC products.  

     GateField entered into a Technology License Agreement with Rohm Co. Ltd. in
March 1998. Under this agreement, Rohm licensed GateField's ProASIC technology
for use in nonembedded applications and in multichip packages having process
technologies down to 0.5 micron and having an approximate raw gate capacity of a
total of 10,240 gates. In addition, Rohm paid a one-time fee to obtain a master
license to GateField's ASICmaster-TM- software. In August 1998, this license was
expanded to provide Rohm with the nonexclusive right to utilize the ProASIC
technology for standard ProASIC products down to 0.35-micron process geometries
with no limitations on density. In addition, the expanded license allows Rohm to
use the ProASIC technology for future reconfigurable SLI ICs royalty-free down
to process geometries of 0.35 micron, but with royalties for less than
 .35-micron products.

     In August 1998, GateField and the Actel Corporation entered into a 
Product Marketing Agreement. Under the terms of this agreement, Actel 
received exclusive, worldwide distribution rights to GateField's standard 
ProASIC FPGA products below .35 micron, including FPGA products that are 
integrated with SRAM or Flash memory and all resulting next generation 
reduced process geometry ProASIC FPGA products. For these rights, Actel paid 
GateField an initial fee of $1 million and agreed to pay a $1 million fee 
upon qualification of the initial 0.25-micron product.

     GateField and Actel also entered into a license agreement which grants 
Actel a fully paid, exclusive, nontransferable license to sell GateField's 
standard ProASIC FPGA products below 0.35 micron and all resulting next 
generation reduced process geometry ProASIC FPGA products. Actel agreed to 
pay GateField a $1 million fee for the license.

     Subject to the license of certain rights to Actel, Siemens and Rohm, 
GateField continues to maintain ownership of its intellectual property 
relating to its technology and products. This allows GateField to address the 
emerging embedded reprogrammability market.

PROPRIETARY RIGHTS

     GateField's ability to compete is dependent in part on its proprietary 
rights and technology. The company relies on a combination of patent, 
copyright and trademark laws; trade secrets; confidentiality procedures; and 
contractual provisions to protect its proprietary rights. It generally enters 
into confidentiality or license agreements with its employees, resellers, 
distributors, customers and potential customers and limits access to its 
software, hardware designs, documentation and other proprietary information. 
There can be no assurance that the steps taken by GateField in this regard 
will be adequate to prevent misappropriation of its technology. 

     GateField currently holds nine United States patents and has three 
patent applications under consideration. The company has ten patents pending 
in foreign countries. GateField believes that these patent rights are an 
important factor in the protection of its proprietary information. There can 
be no assurance that the company's patents will not be invalidated, 
circumvented or challenged; that the rights granted thereunder will provide 
competitive advantages to the company; or that any of the company's pending 
or future patent applications, whether or not being currently challenged by 
applicable governmental patent examiners, will be issued with the scope of 
the claims sought by the company, if at all. Furthermore, there can be no 
assurance that others will not develop technologies that are similar or 
superior to GateField's technology or design around the patents owned by the 
company. 

     GateField Corporation has common law trademark protection for the 
following trademarks: "GateField," "ProASIC," "ProCore," "ProReady," 
"GF100K," "GF200F," "GF250F," "GF260F," "GF360F," "GF460F," "ASICmaker," 
"ASICmaster," "MEMORYmaster," "Sea-of-Tiles," "ProIP," "ProSLI," and 
"FlashLink."


                                          6
<PAGE>

ITEM 2.   PROPERTIES

The Company leases approximately 61,000 square feet of office space in Fremont,
California, approximately 30,800 square feet of which is currently used for its
headquarters and test and engineering operations.  The Company subleases the
remaining 30,231 square feet to Mattson Technology.  The lease expires in August
1999.  The Company is in the process of negotiating a new lease in the same
geographic area as its existing facility, estimates it will lease approximately
15,000 square feet, and believes this space can be obtained on commercially
reasonable terms.

As of December 1998, the company had a total of 37 full-time employees. The
company's employees are not represented by any collective bargaining agreement
with respect to their employment by the company, and the company has never
experienced an organized work stoppage.

The company's future success is heavily dependent upon its ability to hire and
retain qualified technical, marketing and management personnel.  The competition
for such personnel is intense, particularly for engineering personnel with
related networking and integrated circuit design expertise and for technical
support personnel with networking engineering expertise.  See "Risk Factors --
Dependence on Key Personnel."

ITEM 3.   LEGAL PROCEEDINGS

Not applicable.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.




                                          7
<PAGE>

                                       PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is quoted on the OTCBB under the symbol "GATE."  On
July 15, 1998, GateField Corporation's stock was delisted from the Nasdaq
National Market and began trading on the Nasdaq SmallCap Market. On September
17, 1998, the company's stock was delisted from the Nasdaq SmallCap Market for
failing to meet Nasdaq's on-going minimum bid price requirement. At that date,
the company's stock immediately began to trade on the OTC Bulletin Board.

The following table sets forth, for the periods indicated, the high and low bid
prices for the Common Stock as reported by the OTCBB, Nasdaq National Market or
Nasdaq SmallCap Market, as applicable.  Such over the counter market quotations
reflect inter-dealer prices, without retail back-up, mark-down or commission and
may not necessarily represent actual transactions. 

<TABLE>
<CAPTION>

                                   High           Low
--------------------------------------------------------------------------------
          <S>                      <C>            <C>
          1998
          First Quarter            $ 2.25         $ 1.03 
          Second Quarter           $ 2.13         $ 0.84 
          Third Quarter            $ 1.31         $ 0.30 
          Fourth Quarter           $ 1.13         $ 0.27 
--------------------------------------------------------------------------------
          1997
          First Quarter            $ 3.13         $ 1.56 
          Second Quarter           $ 1.72         $ 0.56 
          Third Quarter            $ 1.59         $ 0.47 
          Fourth Quarter           $ 3.00         $ 1.06 
--------------------------------------------------------------------------------
</TABLE>



     At April 8, 1999, there were 1,226 stockholders of record.

     The Company has never paid any cash dividends on its Common Stock.  The
Company currently intends to retain any earnings for future growth and,
therefore, does not anticipate paying any cash dividends on its Common Stock in
the foreseeable future.  Moreover, no dividends shall be paid on shares of
Common Stock until the holders of the Company's Series B and Series C
Convertible Preferred Stock then outstanding shall have received a distribution
as specified in the Company's Restated Certificate of Incorporation. 

RECENT SALES OF UNREGISTERED SECURITIES

     In August 1998, the Company issued 300,000 shares of Series C 
Convertible Preferred Stock ("Series C Stock") to Actel for an aggregate 
purchase price of $3,000,000.  The Series C Stock was issued in reliance upon 
the exemption from registration set forth in Section 4(2) of the Securities 
Act of 1933, as amended (the "Securities Act").  Each share of outstanding 
Series C Stock is convertible into 6.67 shares of Common Stock plus an amount 
of shares at the conversion price equal to the amount of accrued and unpaid 
dividends on the Series C Stock. In the event all shares of the Company's 
Series B Preferred Stock ("Series B Stock") are redeemed, each share of 
Series C Stock is subject to redemption at a price of $10.00 per share plus 
the amount of declared but unpaid dividends.

     In November 1997, the Company, Idanta Partners Ltd., Dunn Family Trust 
and Perscilla Faily Trust (collectively, the "Idanta Entities") entered into 
a two phase private placement transaction, pursuant to a Series B Preferred 
Stock Purchase Agreement (the "Idanta Agreement").  In phase one of the 
transaction, the Idanta Entities agreed to purchase 1,000,000 shares of the 
Company's Series B Preferred Stock (the "Series B Stock") for an aggregate 
purchase price of $4,582,500.  Each share of Series B Stock is convertible 
into 4.5825 shares of the Company's Common Stock plus the amount of accrued 
and unpaid dividends on the Series B Stock at the conversion price.  In 
addition, Idanta agreed to purchase 4,582,500 shares of the Company's Common 
Stock for an aggregate purchase price of $4,582,500, pending stockholder 
approval of certain management proposals contained in the proxy 


                                          8
<PAGE>

statement filed in connection with the Company's 1997 Annual Meeting.  In
December 1997, the stockholders approved all the management proposals. 
Accordingly, in January 1998, in phase two of the transaction, Idanta purchased
an aggregate of 4,582,500 shares of the Company's Common Stock for an aggregate
purchase price of $4,582,500.  Upon the occurrence of certain events specified
in the Company's Restated Certificate of Incorporation, each share of Series B 
Stock is either (i) subject to redemption at the election of at least 51% of the
then outstanding shares of Series B  Stock or (ii) convertible into the number
of shares of Common Stock equal to the number of shares obtained by dividing the
sum of 4.5825 plus accrued and unpaid dividends by 0.75.  The Series B Stock and
the Common Stock were issued in reliance upon the exemption from registration
set forth in Section 4(2) of the Securities Act.

     In October 1998, the Company was notified by Idanta of their desire to
redeem, in cash, an aggregate of 981,997 shares of the Company's Series B Stock
(the "Shares") at a redemption price equal to $4.5825 per share plus accrued
dividends thereon.  Pursuant to the Idanta Agreement, Idanta became entitled to
redemption upon the delisting of the Company's Common Stock from the Nasdaq
SmallCap Market.  In December 1998, the Company redeemed the Shares for an
aggregate price of $4,648,000.  An aggregate of 18,003 shares of Series B
Preferred Stock remain outstanding.

     In February 1997, the Company completed a $3,500,000 private placement with
investors whereby the Company issued 6% subordinated convertible debentures (the
"1997 Debentures") and warrants to purchase an aggregate of 500,000 shares of
Common Stock (the "Warrants").  The 1997 Debentures accrued interest at an
annual rate of 6%, beginning on the date of issue, with principal due and
payable three years from the date of issue, if and to the extent that the 1997
Debentures were not previously converted.  The 1997 Debentures were convertible
at the option of the holder into the Company's Common Stock at a discount up to
20% from market price.  The Warrants have a term of 60 months and have an
exercise price of $2.25 per share.  The 1997 Debentures and Warrants were issued
in reliance upon the exemption from the registration set forth in Section 4(2)
of the Securities Act.

     In May 1997, the 1997 Debentures were converted into 100,000 shares of the
Company's Series A Convertible Preferred Stock having an aggregate stated value
of $3,500,000. In addition, the Preferred Stock Purchase Warrants (the
"Preferred Warrants") were issued to the holders of the Debentures to purchase a
total of 42,858 shares of  Series A Stock.  The term of the Preferred Warrants
is 60 months with an exercise price of $35.00 per share (provided such warrants
could only be exercisable when the last reported sales price of the Common Stock
on the most recent trading day is equal to or greater than $1.50 per share). The
Preferred Warrants and the Series A Stock issued upon exercise were issued in
reliance upon the exemption from the registration set forth in Section 4(2) of
the Securities Act.  Subsequently, 51,972 shares of the Series A Stock were
converted into 4,546,928 shares of the Company's Common Stock at prices ranging
from $0.367 to $0.606 per share. The shares of Common Stock issued upon the
conversion of the Series A Stock were issued in reliance upon the exemption from
the registration set forth in Section 3(a)(9) of the Securities Act.  In August
1997, the Company redeemed all of the remaining outstanding shares of the Series
A Stock and the Preferred Warrants for an aggregate price of $1,827,000. Also in
August 1997, the outstanding Warrants for 500,000 shares of Common Stock were
exchanged for new warrants to purchase 350,000 shares of the Company's Common
Stock at an exercise price of $0.53125 per share. The warrants, issued upon
exchange of the old warrants, were issued in reliance upon the exemption from
the registration set forth in Section 4(2) of the Securities Act.  In September
1997, Common Stock warrants to purchase an aggregate of 105,000 shares of Common
Stock were exercised for an aggregate price of $56,000.  The shares of Common
Stock issued upon exercise of the warrants were issued in reliance upon the
exemption from the registration set forth in Section 3(a)(9) of the Securities
Act.

     In May 1996, the Company sold a total of $10,000,000 of subordinated
convertible debentures (the "1996 Debentures") to institutional investors as
part of a private placement.  The 1996 Debentures accrued interest at an annual
rate of 6%, beginning on the date of issue, with the principal due and payable
three years from the date of issue if and to the extent that the 1996 Debentures
were not previously converted. The 1996 Debentures were convertible at the
option of the holders into Common Stock at a price equal to 80% to 85% of the
average closing bid price for the Common Stock on the Nasdaq National Market for
the five trading days prior to the date of conversion.  During 1996, an
aggregate of $4,356,000 ($4,300,000 of the original principal of the 1996
Debentures and $56,000 of accrued interest) were converted into 2,691,000 shares
of Common Stock.  During 1997, an aggregate of $5,998,000 ($5,700,000 of the
original principal of the 1996 Debentures and $229,000 of accrued interest) were
converted into 7,418,000 shares of Common Stock. The shares of Common Stock
issued upon the conversion of the 1996 Debentures were issued in reliance upon
the exemption from the registration set forth in Section 3(a)(9) of the
Securities Act.  In addition, the investors received warrants to purchase 59,500
shares of Common Stock at an exercise price of $10 per share.  The term of the
warrants was 30 months. The warrants were issued in reliance upon the exemption
from the registration set forth in Section 4(2) of the Securities Act.  At
December 31, 1998 there was no outstanding balance on the 1996 Debentures and a
total of 10,109,000 shares of Common Stock had been issued upon conversion of
the 1996 Debentures.


                                          9
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,
------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)    1998          1997 (d)        1996           1995           1994
------------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>               <C>           <C>            <C>                       
OPERATING RESULTS:                                                                                                             
Revenues                               $  7,700 (c)   $ 15,503 (c)      $ 33,577      $ 51,117 (a)   $ 50,051 (a)              
Gross profit                           $    393       $  4,600          $ 16,569      $ 33,624       $ 30,094                  
Operating income (loss)                $(12,453)      $(17,120)         $(18,435)     $  2,550       $ (9,511)                 
Net income (loss)                      $ (8,268)      $(16,432)         $(21,376)     $  1,957       $ (9,748)(b)
Basic net income (loss) per share:                                                                                             
  Profit (loss) before extraordinary                                                                                           
    item                               $  (0.20)      $  (0.72)         $  (1.03)     $   0.09       $  (0.52)                  
  Extraordinary item                                     (0.03)
                                       --------       --------          --------      --------       --------
  Net income (loss) per share          $  (0.20)      $  (0.75)         $  (1.03)     $   0.09       $  (0.52)   
Diluted net income (loss) per share:                                                                                           
  Profit (loss) before extraordinary                                                                                           
    item                               $  (0.20)      $  (0.72)         $  (1.03)     $   0.09       $  (0.52)                  
  Extraordinary item                                     (0.03)
                                       --------       --------          --------      --------       --------
  Net income (loss) per share          $  (0.20)      $  (0.75)         $  (1.03)     $   0.09       $  (0.52)   
Basic weighted average shares                                                                                                  
  outstanding                            41,251         30,303            20,655        19,393         18,598                    
Diluted weighted average shares                                                                                                
  outstanding                            41,251         30,303            20,655        21,233         18,598                    
------------------------------------------------------------------------------------------------------------------
YEAR END FINANCIAL DATA:                                                                                                       
Working capital (deficit)              $ (3,510)      $    (47)         $ (1,240)     $  6,741       $  1,621    
Total assets                           $  6,853       $ 11,256          $ 29,527      $ 28,980       $ 29,825                  
Redeemable preferred stock             $  3,083       $  4,594                 -             -              -   
Long-term debt                         $    330       $     58          $  6,636 (d)  $  1,207       $  1,874                   
------------------------------------------------------------------------------------------------------------------
</TABLE>

(a) Revenues, net income and net income per share for 1995 included amounts
related to a technology distributed by GateField and owned by a U.K. Company. 
Effective January 1, 1996, the two companies formed a joint venture. 
Consequently, specific revenues and costs related to this product were no longer
consolidated in GateField's financial statements beginning in 1996. 

(b) The net loss in 1994 included a charge for asset write-downs and staff
reductions of $6,800,000, primarily related to the Company's decision to
discontinue selling the Paradigm ViP-TM- (VHDL instruction processor) product.

(c) Revenues decreased in 1998 and 1997 due to the sale of certain assets of the
Company (see Note 4 of Notes to Consolidated Financial Statements).

(d)  As restated, see Note 12 of Notes to Consolidated Financial Statements.

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

     THE DISCUSSION IN THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE STATEMENTS CONTAINED IN THIS REPORT THAT
ARE NOT PURELY HISTORICAL ARE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, INCLUDING STATEMENTS REGARDING THE
COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE.
ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON
INFORMATION AVAILABLE TO THE COMPANY ON THE DATE HEREOF, AND THE COMPANY ASSUMES
NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED IN "FACTORS AFFECTING FUTURE RESULTS" AS WELL AS THOSE DISCUSSED
IN THIS SECTION AND ELSEWHERE IN THIS REPORT, AND THE RISKS DISCUSSED IN THE
COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS. 


                                          10
<PAGE>

OVERVIEW 

     GateField Corporation designs, develops, manufactures and markets high
density, high performance programmable logic solutions and related development
software. The company's products are flash-based FPGAs trademarked as
programmable ASICs (ProASIC-TM-). The products were developed using two
proprietary and patented technologies: a flash-based switching element and a
fine-grained, gate array-like ProASIC architecture. The company believes the
principal advantages of GateField products over alternative SRAM-based and
antifuse devices are: smaller chip size for the same geometries,
reprogrammability and non-volatility and the ability to use a standard
electronic design automation (EDA) application specific integrated circuit
(ASIC) design flow. 
     
     GateField's products are designed to provide high integration, fast
time-to-market and fast time-to-volume for electronic equipment manufacturers in
the networking, telecommunications, computer, peripheral, industrial control,
instrumentation and consumer markets.  Rohm Co. Ltd. fabricates GateField's
current 0.72-micron ProASIC product wafers.  Siemens Aktiengesellschaft has
agreed to manufacture GateField's 0.25-micron product wafers in its production
facility in Dresden, Germany. 
     
     During the past two years, GateField Corporation has experienced
downsizing, reorganization and a change in its core business. With the sale of
its assets related to the verification products in 1997, the company completed
the transition of its core business from a provider of high performance
verification products to a provider of FPGA products. (See Note 4 of the "Notes
to Consolidated Financial Statements.") Accordingly, annual revenues have
steadily declined over the three-year period to $7.2 million in 1998 down from
$15.5 million in 1997 and $33.6 million in 1996. Operating expenses also
decreased to $12.9 million in 1998 from $21.8 million in 1997 and $35.0 million
in 1996 as the company reduced its staff each year to match forecasted sales. 
     
     The company began selling its 0.72-micron standard ProASIC product in late
1996. The product was not financially successful due to poor manufacturing
yields; however the product did prove the feasibility of the technology. In
1998, the company stopped actively promoting the sale of its 0.72-micron ProASIC
product and intends to terminate sales in the second quarter of 1999. 
     
     The company is now developing a family of 0.25-micron and below
programmable ASIC products and has no significant sales. GateField is currently
completing initial testing of the 0.25-micron product.  It began sampling
initial customers in the first quarter of 1999.  
     
     In August 1998, the company entered into a strategic alliance with Actel
Corporation, under which Actel received exclusive, worldwide distribution rights
to GateField's 0.25 micron and below standard ProASIC products. Actel also
purchased the assets of GateField's Design Services product line as well as $3
million of the company's Series C Preferred Stock, which is convertible into
2,000,000 shares of GateField common stock.  As a result of the alliance the
company essentially eliminated its sales and marketing department.  
     
     GateField maintains rights to the intellectual property underlying its
technology allowing it to address the emerging market for embedded
reprogrammability. The company will seek to license its technology for embedded
products in the future.  GateField has entered into licensing agreements with
Siemens and Rohm, which provide them with manufacturing or distribution rights
to various GateField products; these agreements have resulted in approximately
$4.5 million in deferred revenue as of December 31, 1998. (See Description of
Business-License Agreements).  These agreements do not include per unit royalty
fees.

     In light of expected decline in sales, the company reviewed its 
strategies, organization and expenses in the third quarter of 1998 and as a 
result, significantly reduced personnel and other operational expenses. 
Fourth quarter operating expenses in 1998 were approximately $2.1 million. 
GateField plans to maintain these lower operating costs in the future due to 
the sale of the design services business, cost-saving measures implemented in 
all departments during the fourth quarter of 1998 and almost complete 
elimination of sales and marketing personnel. Management's plan in 1999 is to 
control operating expenses at approximately those levels achieved in the 
fourth quarter of 1998, to begin sales of the .25-micron standard ProASIC 
product, and to obtain additional financing.  Because the Company has 
terminated product lines and changed development direction and its operating 
model, its historical financial performance cannot and should not be used to 
indicate future financial performance.
     
     Subsequent to the issuance of the company's 1997 consolidated financial 
statements, the company determined that certain transactions recorded in 
connection with the $10,000,000 and the $3,500,000 Subordinated Convertible 
Debenture Notes and the Siemens License Agreement, were inappropriately 
recorded.  As a result the company's 1996 and 1997 financial statements have 
been restated from amounts previously reported to appropriately reflect these 
transactions (See Note 12 of the "Notes to Consolidated Financial 
Statements."). References to 1997 results of operations herein have been 
revised to reflect the affects of the restatement.

RESULTS OF OPERATIONS

REVENUES
     
     Total product revenues declined to $2.6 million in 1998 down from $5.4 
million in 1997 and $18.2 million in 1996. Sales of verification related 
products were zero in 1998, $2.5 million in 1997 and $17.9 million in 1996. 
Sales of ProASIC related products were $2.6 million in 1998, $2.9 million in 
1997 and $304,000 in 1996.  ProASIC product revenue includes license fees 


                                          11
<PAGE>

from Siemens and from Rohm of approximately $1.1 million in 1998.  The 
decline in verification related products to zero in 1998 was due to the sale 
of verification products in 1997.  The decline in ProASIC revenues in 1998 
from 1997 was due to a highly competitive environment brought on by the 
introduction of smaller, cheaper geometries by competitive technologies and 
the decision by the company to halt active sales efforts for the 0.72-micron 
product in the third quarter of 1998.  As was previously mentioned, the 
company sold the assets related to the verification products in 1997, and 
therefore the related revenue ceased in 1997.  The ProASIC product revenue 
relates to the company's 0.72-micron products, which will be terminated in 
the second quarter of 1999. Most of the company's revenues in 1999 will come 
from the introduction of its 0.25-micron products.  However, at this time the 
company does not know when sales will begin, nor how many products will be 
introduced and in what packages. It is impossible to anticipate the degree of 
market acceptances of this new technology, or whether it will be accepted at 
all.  Therefore the revenues associated with the new 0.25-micron product 
cannot be predicted with any degree of accuracy.

     Service revenues were $5.1 million, $10.1 million and $15.3 million in 
1998, 1997 and 1996, respectively. Service revenues are comprised of two 
components: maintenance contracts on the verification systems and design 
services. Verification maintenance revenues were $2.3 million in 1998, $8.7 
million in 1997 and $9.9 million in 1996.   The decline in verification 
maintenance revenues in 1998 from 1997 relates to the sale of the underlying 
verification products and the termination of new sales of those products by 
the purchaser.  The company expects revenues from the verification services 
to continue to decline at an accelerated rate and eventually to cease in 
1999. Service fees related to the company's Design Service product line, 
which was sold to Actel in August 1998, were $2.8 million in 1998, $3.8 
million in 1997 and $5.4 million in 1996.  As the design service unit was 
sold in August 1998, the company does not expect any future revenue from 
these products in 1999. 

GROSS MARGIN

     Gross margin in 1998, 1997 and 1996 was affected by many factors, 
including but not limited to: license fees, pricing strategies, product mix, 
yield variations and increased costs incurred in the introduction of new 
products. Gross margin was approximately $393,000 in 1998, $4.6 million in 
1997 and $16.6 million in 1996. Gross margin as a percentage of total 
revenues was 5% in 1998, 30% in 1997 and 49% in 1996. 

     Gross margin (deficit) from product revenues was ($2.0) million, ($1.0) 
million, and $9.8 million in 1998, 1997 and 1996, respectively. Gross margin 
related to verification products was zero in 1998, ($1.8) million or 75.4% in 
1997 and $9.6 million or 53.8% in 1996.  The decline in gross margin in 
verification related products to zero in 1998 was due to the sale of the 
verification products in 1997.  Gross margin related to these products ceased 
in 1997.  Gross margin (deficit) related to ProASIC products was $(2.0) 
million in 1998, ($3.3) million in 1997 and $149,000 in 1996. Poor 
manufacturing yields in 1998 on the 0.72-micron product wafers negatively 
affected the margins of 0.72-micron products.  In 1998, negative ProASIC 
product margins were significantly affected by a $1.8 million inventory 
write-down charge for 0.72-micron product inventories to reflect a decrease 
in the net realizable value, which was partially offset by $1.2 million in 
license revenue with minimal related costs.  The decline in ProASIC gross 
margins in 1998 versus 1997 were largely due to volume differences and the 
inventory write-down charge.  As the design and manufacturing processes are 
different for the 0.72-micron and the 0.25-micron products, the yield and, 
hence, the gross margins on the two products are totally unrelated, thus, the 
company cannot predict its margins for 1999 with any degree of certainty.  
Gross margin related to 0.72-micron products will cease in the second quarter 
of 1999, and it is not expected to be a significant amount.

     Gross margin from service revenues was $2.4 million in 1998, $5.6 
million in 1997 and $6.8 million in 1996. Gross margin as a percentage of 
service revenues was 48%, 56% and 44% for the three years respectively. 
Margins related to maintenance contracts on the verification systems were 
$2.2 million or 69.7% in 1998, $4.8 million or 77.5% in 1997 and $5.8 million 
or 58.2% in 1996. The verification maintenance revenues and hence the related 
gross margins, will continue to decline to zero in 1999. Margins related to 
design services were $277,000 or 14% in 1998, $725,000 or 19% in 1997 and 
$1.0 million or 17.2% in 1996. The design services business is on a contract 
basis and margins can vary fairly significantly from customer to customer 
depending on the nature of the service being rendered. Also, because revenue 
from design services stopped in August 1998, the company does not expect any 
gross margin contribution from this source in 1999. Gross margin from service 
revenues, if any, are not expected to be significant in 1999.
     
SALES AND MARKETING

     Sales and marketing expenses were $4.1 million or 53% of total revenues 
in 1998, $9.7 million or 62% in 1997 and $14.3 million or 43% in 1996. In 
1998, sales and marketing expenses decreased 58% or $5.6 million reflecting 
the reduced staffing levels in the second half of 1997 and the elimination of 
the sales department and most of the marketing department in the second half 
of 1998. In 1997, sales and marketing expenses decreased 33%, or $4.7 
million, compared to 1996. This was primarily due to reduced staffing levels 
resulting from the disposition of product lines in 1997.  However, sales and 
marketing expenses increased in 1997 as a percentage of revenue as a result 
of efforts to support the introduction of several new products in our 
ProASIC-TM- product family. 

     As a result of GateField's efforts to market its 0.72-micron products in 
1997 and early 1998, the company realized the process of introducing new 
products to the semiconductor marketplace required significant sales and 
marketing resources.  The company elected to sell the exclusive worldwide 
distribution rights to its 0.25 and below ProASIC products to the Actel 
Corporation in August 1998 and to focus on product development. With this 
strategic alliance in place, GateField expects only minimal marketing 
expenses in 1999 to support strategic initiatives and product design efforts. 


                                          12
<PAGE>

RESEARCH AND DEVELOPMENT

     GateField's research and development expenses were $5.5 million, $7.9
million and $15.8 million in 1998, 1997 and 1996, respectively. The 30% decrease
in 1998 over 1997 and the 50% decrease in 1997 over 1996 were principally due to
reduced staffing levels resulting from the sale of the verification businesses
in 1997 and 1998. GateField's current research and development efforts are now
focused on its ProASIC products; the company believes its current staffing
levels and, therefore, research and development expenses will remain relatively
constant for 1999.

GENERAL AND ADMINISTRATIVE 

     General and administrative expenses were $3.3 million, $4.2 million and
$4.9 million in 1998, 1997 and 1996, respectively. The decrease in general and
administrative expenses in 1998 as compared to 1997 and in 1997 as compared to
1996 was primarily related to decreased staffing levels, cost-cutting measures
and reduced overhead resulting from the reduction or termination of operations
in its Taiwan, United Kingdom, France and German offices. These reduced expenses
were partially offset by higher legal and financial consulting expenses
associated with the strategic relationships in 1997 and 1998. The company
believes that general and administrative expenses will remain relatively
constant in 1999.

OTHER INCOME AND EXPENSE

     Net interest expense was $173,000 in 1998 compared to $1.4 million in 1997
and $3.2 million in 1996. The decrease in 1998 reflects the lack of
interest-bearing debt compared to earlier periods and interest income on
positive bank balances held throughout the year due to new issuance's of equity
at the end of 1997 and during 1998. The decrease in 1997 was primarily due to a
decrease in interest expense related to the subordinated convertible debentures
that were converted to common stock in 1997 offset by the amortization of
discount related to convertible debentures issued in 1997. 

     Other income was $4.4 million in 1998, $3.1 million in 1997 and $0.2
million in 1996. These amounts include a $4.5 million gain in 1998 from the sale
of the Design Service assets to Actel, a $2.7 million gain from the sale of the
verification and LightSpeed product families and the sale of the company's
interest in QSS in 1997.  (See Note 4 of the "Notes to Consolidated Financial
Statements.")
 
NET LOSS

     The net loss for 1998 was $8.3 million, which compares to a net loss of
$16.4 million in 1997 and a net loss of $21.4 million in 1996. Recognizing the
impact of lower sales in these years, the company took steps to decrease
operating expenses through a series of reorganizations, which helped to
progressively reduce the annual net loss. Fiscal years 1998 and 1997 were also
impacted by lower than expected sales from the 0.72-micron products and their
corresponding negative gross margins. 
     
     The $8.3 million net loss in 1998 was bolstered by a $4.5 million gain in
other income from the sale of the company's Design Services assets to Actel.
This compares to a $16.4 million net loss in 1997 which was also aided by a $2.7
million gain in other income from the sale of certain assets in that year and
offset by $500,000 in debt discount amortization and $1 million debt
extinquishment losses.  (See Note 4 of the "Notes to Consolidated Financial
Statements.") The losses in 1998 and 1996 were additionally impacted by $2.2
million and $1.8 million, respectively, in one-time inventory write-down charges
to cost of sales.  Additionally in 1996 there was $1.8 million of bad debt and
reorganization costs and $2.5 million of amortization expense related to
debenture discounts. 

LIQUIDITY AND CAPITAL RESOURCES

     GateField has historically used private offerings of convertible debt and
convertible preferred stock, public and private offerings of common stock, sale
and leaseback arrangements and bank financing and credit lines to finance its
business. 

     Net cash used in operations was $8.2 million in 1998 compared to $11.3
million in 1997 and $12.6 million in 1996. During 1998 and 1997, there was a
significant decline in the size of the business as the company transitioned to
an intellectual property company and sold off its other significant assets
related to product lines. This decrease in the size of the business resulted in
a decrease in the net loss, accounts receivable, accounts payable and accrued
liabilities. The decrease in 1998 was partially offset by the receipt of $4.5
million in license fees resulting in deferred revenue. Cash used in operations
in 1996 principally reflects the net loss generated by operations, net sales
under capital leases and a growth in inventories, partially offset by a growth
in accounts payable and accrued liabilities. 
     
     Net cash provided by investing activities was $5.2 million in 1998 compared
to $11.2 million in 1997 and compares to a net cash used by investing activities
of $3.5 million in 1996. The amounts generated in 1998 and 1997 were primarily
due to cash receipts from the disposition of product families. GateField expects
to invest a minimum of $300,000 and possibly as much as $800,000 in mask sets
for its new 0.25-micron product in 1999 but does not anticipate any other
significant capital asset acquisitions during the upcoming year.


                                          13
<PAGE>

     Net cash generated by financing activities was $2.9 million in 1998, which
compares to $3.0 million in 1997 and $13.9 million in 1996. The increase in 1998
was due to the $4.6 million sale of common stock to a single investor in the
first quarter of 1998, the $3.0 million sale of Convertible Preferred Stock in
August 1998, offset by the $4.6 million redemption of the company's Series B
Convertible Preferred Stock in December 1998. (See Note 10 of the "Notes to
Consolidated Financial Statements.") The decrease in net cash provided by
financing activities in 1997 as compared to 1996 was primarily due to decreased
levels of debenture offerings in 1997 as well as reduced levels of bank debt and
financing obligations in 1997, partially offset by the sale of $4.6 million in
Convertible Preferred Stock. (See Note 10 of the "Notes to Consolidated
Financial Statements.") Cash generated by financing activities in 1996 was
primarily attributable to a $10.0 million subordinated convertible debenture
notes offering and $3.2 million in bank borrowings.

     At December 31, 1998, the company had cash and cash equivalents of $3.8
million. The company had a working capital deficit of $3.5 million compared to
deficits of $47,000 at December 31, 1997 and $1.2 million at December 31, 1996. 
     
     During 1998, 1997 and 1996, GateField incurred net losses of 
approximately $8.3 million, $16.4 million and $21.4 million, respectively. 
The company expects to continue to generate such losses for at least the 
remainder of 1999. Additionally, the company had a working capital deficit of 
$3.5 million at December 31, 1998. As a result, the company estimates it 
will have utilized all of its currently available capital resources on or 
about April 30, 1999. Thus, the company will be unable to continue as a 
going concern if sufficient funding is not available. Accordingly, the Board 
of Directors has authorized management to pursue efforts to sell common stock 
or preferred stock in order to raise additional capital to finance the 
company's operations as well as to seek other sources of funds. The board has 
authorized management to seek from $10 to $12.5 million in additional capital 
to fund operations. 
     
     GateField has contacted a number of potential providers of additional 
capital, including investment banking firms, financial investors, customers, 
potential customers, strategic partners and potential strategic partners.  In 
this regard, management has held discussions with Idanta Partners Ltd. and 
Actel Corporation, each a significant stockholder, of the company (which 
together with their affiliates are called "investor stockholders"). These 
investor stockholders have indicated their preliminary interest in providing 
additional financing (called a "proposed financing"). The price per share of 
Common Stock to be issued in such a proposed financing is expected to be 
determined at about the time the offering is made and at this time is 
undetermined, although it is anticipated that the Common Stock would be 
issued at a substantial discount to the prevailing market price to reflect 
the illiquidity of the shares. GateField is seeking one or more institutional 
investors to participate in the proposed financing; however, it has not yet 
identified such investors. If additional funds are raised through the 
issuance of equity securities, the percentage ownership of current 
stockholders will be reduced and such equity securities may have rights, 
preferences or privileges senior to those of current stockholders.  No 
assurance can be given that additional financing will be available or that, 
if available, it can be obtained on terms favorable to GateField and its 
stockholders. If adequate funds are not available, the company would be 
required to delay, limit or eliminate some or all of its proposed operations.

     To meet the company's capital requirements pending the closing of the 
proposed financing, GateField has held discussions with the investor 
stockholders in which the investor stockholders have indicated on a 
preliminary basis their willingness to extend loans to the company in the 
aggregate principal amount of $4 million called "investor loans". The company 
currently anticipates that capital in the aggregate principal amount of $6 to 
$12 million will meet GateField's operating requirements through 1999. It is 
anticipated that any loans from the investor stockholders would automatically 
be convertible into shares of common stock at the closing of, and upon the 
same terms and conditions as, the proposed financing, subject to reduction in 
the event that the proposed offering is fully subscribed for. The investor 
stockholders have indicated their preliminary interest in serving as stand-by 
purchasers of a portion of any unsubscribed amount of the offering. Although 
the investor stockholders have indicated their preliminary interest in 
providing the investor loans, no assurance can be given that the investor 
loans will be available or that if available will be obtained on terms 
favorable to GateField and its stockholders. If the investor loans are not 
provided and adequate funds from other sources are not available by April 30, 
1999, the company will be required to terminate its operations. 

     On July 15, 1998, the GateField Corporation's stock was delisted from 
the Nasdaq National Market and moved to the Nasdaq SmallCap Market. On 
September 17, 1998, the company's stock was delisted from the Nasdaq SmallCap 
Market for failing to meet Nasdaq's on-going minimum bid price requirement. 
At that date, the company's stock immediately began to trade on the OTC 
Bulletin Board. 

YEAR 2000 ISSUES

     GateField Corporation is aware that many existing information technology 
(IT) systems, such as computer systems and software products, as well as 
non-IT systems that include embedded technology, were not designed to 
correctly process dates after December 31, 1999. The company is currently 
assessing the impact of such "Year 2000" issues on its internal IT and non-IT 
systems, as well as on its customers, suppliers and service providers. The 
company has formed a "Year 2000 Team" to identify, access and resolve Year 
2000 compliance issues. The Year 2000 Team is testing and evaluating 
GateField's products and the company's IT systems; the team recently 
completed an inventory of all material Year 2000 issues.

     To date, GateField has not identified any significant areas of 
noncompliance with respect to its products or IT and non-IT systems. It 
expects that the assessment and all remedial action for all of its products, 
IT systems and non-IT systems will be completed by the end of calendar year 
1999. GateField intends to take the necessary steps to make its systems Year 
2000 compliant. These steps may require the company to modify, upgrade or 
replace some of its internal financial and operational systems. The cost 


                                          14
<PAGE>

of bringing all internal systems, equipment and operations into Year 2000
compliance has not yet been determined. While these efforts may involve
additional costs, GateField believes, based upon currently available
information, that these costs will not have a material adverse effect on the
business, financial condition or results of operations of the company--although
no assurances can be given. 

     The company also has begun discussions with significant customers,
suppliers and service providers to determine their plans to address Year 2000
issues. Although GateField anticipates cooperation in these efforts, it may be
difficult for the company to obtain assurances of Year 2000 readiness from such
third parties. If any customers, suppliers or service providers fail to
appropriately address their year 2000 issues, such failure could have a material
adverse effect on GateField's business, financial condition and results of
operation. The Year 2000 Team intends to develop contingency plans in the event
any third party that provides goods or services essential to the company's
business fails to appropriately address their Year 2000 issues. Even if
GateField's assessments, resolutions and contingency plans are completed and put
in place on time, there can be no assurance that such actions will be sufficient
to address any third-party failures. Nor can GateField be assured that
unresolved or undetected internal and external Year 2000 issues with third
parties will not have a material adverse effect on the company's business,
financial condition and results of operations.

     Although GateField believes that its Year 2000 Team will identify all of
the company's material Year 2000 issues, given the pervasiveness of Year 2000
issues and the complex interrelationships among Year 2000 issues both internal
and external to the company, there can be no assurance that the company will be
able to identify and accurately evaluate all such issues. As the process of
identifying, accessing and resolving Year 2000 compliance issues proceeds, the
company may identify situations that present material Year 2000 risks and/or
that will require substantial time and material expense to address. Even if the
company's assessments and resolutions are completed on time and put in place,
there can be no assurance that such plans will be sufficient to address any
failures or that unresolved or undetected internal and external Year 2000 issues
will not have a material adverse effect on the company's business, financial
condition and results of operations.
     
RECENTLY ISSUED ACCOUNTING STANDARD

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities."  This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value.  Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting.  SFAS No. 133 will be effective for
the company's fiscal year ending December 31, 2000.  Management believes that
this statement will not have a significant impact on the company's financial
position, results of operations or cash flows.

EXECUTIVE OFFICERS OF THE REGISTRANT 

The executive officers of the Company and their ages as of March 31, 1999 are as
follows:

<TABLE>
<CAPTION>

     Name                Age       Position
     ----                ---       --------
     <S>                 <C>       <C>
     Timothy Saxe        43        President, Chief Executive Officer and 
                                   Chief Operating Officer

     Peter G. Feist      44        Senior Vice President, Marketing

     James B. Boyd       46        Chief Accounting Officer and Controller
</TABLE>

     TIMOTHY SAXE, a founder of the Company, has been President and Chief 
Operating Officer of the Company since July 23, 1998  and Chief Executive 
Officer of the Company since February 8, 1999.  From October 1997 to July 
1998 he was Vice President of Engineering and Research and Development of the 
Company.  From 1993 to 1997, Dr. Saxe was Vice President of Engineering of 
the GateField division of Zycad.  

     PETER G. FEIST has served as Vice President, Business Development of the 
Company since October 1996.  From January 1995 to September 1996, he was 
Regional Manager, Europe for Hyundai Electronics, Digital Media Division, a 
semiconductor company.  From April 1985 to December 1994, he was Director of 
Marketing for LSI Logic GmbH, an ASIC company.

                                          15
<PAGE>

     JAMES B. BOYD has served as Chief Accounting Officer and Controller of 
the Company since April 1998.  From February 1998 to April 1998, he was a 
consultant with various companies for Re:Sources, an accounting agency.  
Prior to that time, he was Chief Financial Officer of AirMedia, Inc. a 
software developer and manufacturer of wireless mobile products.  From March 
1996 to August 1997, he was Controller of Netopia Communications, Inc., a 
manufacturer of network communications equipment.   From December 1992 to 
March 1996, he was an independent consultant working for several technology 
companies.

FACTORS AFFECTING FUTURE RESULTS

OPERATING LOSSES AND NEGATIVE WORKING CAPITAL

     Currently, GateField has a negative working capital position. Also, the
company has not reported an operating profit since fiscal 1995. The company
reported operating losses of $12.5 million in 1998, $17.1 million in 1997 and
$18.4 million in 1996. In fact, the company does not expect to be profitable, if
at all, until 2000. There are several factors contributing to this: the company
continues to allocate its resources to the 0.25-micron product; the
semiconductor industry, in general, is experiencing overcapacity and decreasing
prices; and weak economic conditions in the Asia Pacific region and Japan
continue to impact the marketplace. GateField cannot predict how long it will
continue to experience significant or increasing operating and net loss or
whether or if it will become profitable.

NO ASSURANCE OF FUTURE FUNDING

     GateField must continue to make significant investments in research and
development to remain competitive. Its future capital requirements will depend
on many factors, including, among others: product development expense levels,
investments in working capital, and the amount of income generated by
operations, including royalty income and income deriving from the Actel 
relationship. To the extent that existing resources and future earnings are
insufficient to fund the company's operations, GateField may need to raise
additional funds through public or private debt or equity financings. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of current stockholders will be reduced and such equity
securities may have rights, preferences or privileges senior to those of the
holders of the company's common stock.

     The company has historically funded its operations primarily through
private equity and debt financings, sale and leaseback arrangements and bank
financing and credit lines. The company intends to continue to explore and, as
appropriate, enter into discussions with current stockholders and other parties
regarding possible future sources of capital (See "Liquidity and Capital
Resources").  Although both Actel and Idanta have indicated their preliminary
interest in providing additional funding, no assurance can be given that this
additional financing will be available or that, if available, it can be obtained
on terms favorable to GateField and its stockholders. Unless the company 
obtains additional funding, the company will have utilized all its 
currently-available resources on or about April 30, 1999.

DEPENDENCE ON THE SUCCESSFUL DEVELOPMENT OF 0.25-MICRON PRODUCTS

     GateField's success is highly dependent upon the timely completion and 
introduction of new products at competitive price and performance levels, 
especially the timely introduction of its next generation of 0.25-micron 
products. GateField is currently completing initial testing of its 
0.25-micron products and related software. The joint Actel/GateField 
marketing team began sampling initial customers in the first quarter of 1999. 
Production software and a device programmer are scheduled to be available in 
the second quarter of 1999. No assurance can be given that the company's 
design and introduction schedules for such products will be met. Moreover, 
there can be no assurances that, even if such products are introduced into 
the market on a timely basis, they will be successfully developed or that 
they will achieve market acceptance. To the extent that the company's 
development and commercialization efforts with respect to the 0.25-micron 
products is unsuccessful or if these products do not achieve market 
acceptance, the company's business, financial condition and results of 
operations would be materially adversely affected.
     
     The company's 0.25-micron products are highly complex and may contain
undetected or unresolved defects when first introduced or as new versions are
released. There can be no assurance that, despite testing by the company,
defects will not be found in new products, including the company's 0.25-micron
products, or new versions of such products following commercial release. This
could result in loss of market share, delay in or loss of market acceptance or
product recall. Any such occurrence could have a material adverse effect upon
the company's business, financial condition and results of operations.

DEPENDENCE ON INDEPENDENT WAFER MANUFACTURERS

     GateField does not manufacture any of the wafers used in the production of
its products, including its 0.72-micron ProASIC products. This dependence on
independent wafer manufacturers puts GateField at risk should its suppliers be
unable or unwilling to produce GateField's products.

     Currently, GateField's 0.72-micron ProASIC products are manufactured by
Rohm in Japan. In addition, GateField has an agreement with Siemens to
manufacture the company's new 0.25-micron products at Siemens' wafer fabrication
facility located in Germany, once initial testing of the GateField 0.25-micron
products is completed. As the company's products migrate to 0.25-


                                          16
<PAGE>

micron geometries, GateField will become increasingly dependent on Siemens for
the manufacture of its products. This dependence on a single foundry subjects
the company to risks associated with an interruption of supply from a single
source.  Furthermore, Siemens is spinning off its semiconductor business, so
there can be no assurance that the wafer manufacturing portion of such
operations will be willing and capable of continuing to support the manufacture
of GateField's products. 

     GateField plans to initially produce its 0.25-micron products in relatively
low volumes. Still, it will be competing with Siemens' internal requirements for
production capacity and the attention of Siemens' process engineers. The
company's reliance on Siemens to fabricate its 0.25-micron products involves
significant risks, such as technical difficulties or damage to production
facilities that could limit production and reduce yields, lack of control over
capacity allocation and lack of control over delivery schedules. Also, these
risks are increased by the fact that GateField does not have second source
suppliers for any of its wafer products. 

     GateField has in the past experienced delays in obtaining wafers from its
foundries, and there can be no assurance that the company will not experience
similar or more severe delays in the future. Although GateField has supply
agreements with both Rohm and Siemens, a shortage of raw materials or production
capacity could lead either of them to allocate available capacity to customers
other than GateField. Or in the case of Siemens, internal uses could delay
manufacture of GateField products and interrupt GateField's capability to meet
its product delivery obligations. Any inability or unwillingness of GateField's
independent wafer manufacturers to provide adequate quantities of finished
wafers to satisfy GateField's needs in a timely manner would delay production
and product shipments and could have a material adverse effect on GateField's
business, financial condition and results of operations. These risks are
particularly pronounced with respect to the company's reliance on Siemens as the
only manufacturer of the company's 0.25-micron products.

     If GateField's independent wafer manufacturers were unable or unwilling to
manufacture GateField's products as required, the company would have to identify
and qualify additional foundries. The development and qualification process
typically takes one year or longer. No assurance can be given that any
additional qualified wafer foundries would become available or be able to
satisfy GateField's requirements on a timely basis. In particular, the company
has invested significant amounts of time and resources in working with Siemens
to develop and improve the manufacturing processes relating to GateField's
0.25-micron product family. Although Siemens has also invested significant
resources into its relationship with GateField, if Siemens were unable or
unwilling to manufacture such products as anticipated by GateField, GateField
would be unable to introduce such products to market on a timely basis, which
would have a material adverse effect on the company's business, financial
condition and results on operations. 

RELIANCE ON ACTEL RELATIONSHIP

     In August 1998, GateField entered into a strategic relationship with Actel
Corporation. In a product marketing agreement, Actel acquired the exclusive
right to distribute GateField's standard ProASIC products based on 0.25 micron
and smaller geometries. In connection with the formation of the alliance,
GateField terminated its entire sales force and does not anticipate creating a
new sales force in the foreseeable future. Consequently, GateField is highly
dependent on Actel's sales efforts and the success of its sales force in
marketing GateField's 0.25-micron products. 

     Actel will continue to market its own products, including products that are
competitive with GateField's products. Accordingly, there is a risk that Actel
may give higher priority to the Actel products, thus reducing its efforts to
sell GateField's products. In addition, GateField's agreement with Actel is
terminable by Actel under a variety of circumstances, including GateField's
material breach of the product marketing agreement.  As GateField would require
significant amounts of time and resources to rebuild its sales force, reduction
in sales efforts by Actel or a termination of its agreement with GateField would
have a material adverse effect on GateField's business, financial condition and
results of operations. Furthermore, if Actel's sales and marketing efforts do
not achieve anticipated growth rates, GateField would be forced to reduce the
amount of product that is manufactured. As a result, the company's profit
margins on future sales of higher cost products would be reduced because
GateField would be unable to take full advantage of Siemens' manufacturing cost
reductions.

     The Product Marketing Agreement with Actel contains certain GateField
milestones relating to the development schedule and manufacturing costs of the
 .25 micron product family.  The agreement also contains Actel milestones with
respect to the marketing and sale of the .25 products (including certain revenue
targets).  GateField currently anticipates that it will fail to meet certain of
its milestones relating to the cost of manufacturing one of the .25 products. 
If GateField fails to achieve such cost milestones, Actel may be relieved of its
milestone obligations under the Product Marketing Agreement and may have the
right to assume control over GateField's operations relating to the manufacture
of such product.  Such loss of control could divert resources from other
GateField development efforts and disrupt the company's development efforts with
respect to the .25 product family.  Also, the termination of Actel's milestone
obligations would lessen the value of the Product Marketing Agreement to
GateField.  Such consequences of GateField's failure to achieve its milestones
could have a material adverse effect on GateField's business, financial
condition and results of operations.


                                          17
<PAGE>

COMPETITION

     The semiconductor industry is intensely competitive and is characterized by
rapid rates of technological change, product obsolescence, and price erosion.
GateField's existing competitors include suppliers of conventional gate arrays,
complex programmable logic devices (CPLDs) and FPGAs. The company's two
principal competitors are Xilinx, a supplier of FPGAs based on SRAM technology,
and Altera, a supplier principally of CPLDs. GateField also faces competition in
the future from major domestic and international semiconductor suppliers and
suppliers of logic products based on new or emerging technologies. Given the
intensity of the competition and the research and development being done, no
assurance can be given that GateField's technology--or patents--will remain
competitive.

     Important competitive factors in GateField's market are: price,
performance, number of usable gates, ease of use and functionality of
development system software, installed base of development systems, adaptability
of products to specific applications, length of development cycle (including
reductions to finer micron design rules), number of I/Os, reliability, adequate
wafer fabrication capacity and sources of raw materials, protection of products
by effective utilization of intellectual property laws and technical service and
support. Failure of GateField to compete successfully in any of these or other
areas could have a material adverse effect on its business, financial condition
and results of operations. 

     Furthermore, if there was a downturn in the market for CPLDs and FPGAs,
GateField believes companies that have broader product lines and longer standing
customer relationships may be in a stronger competitive position than GateField.
Many of the company's current and potential competitors offer broader product
lines and have significantly greater financial, technical, manufacturing and
marketing resources than GateField has. 

DEPENDENCE ON KEY PERSONNEL

     GateField's success is dependent in large part on the continued service of
its key management, engineering, marketing and support employees. Competition
for qualified personnel, particularly skilled IC engineers, is intense in the
semiconductor industry. The loss of GateField's current key employees, or the
inability of the company to attract other qualified personnel, could have a
material adverse effect on GateField. The company does not have employment
agreements with any of its key employees, but it does have standard
non-disclosure agreements with all technical and management employees and it
does have indemnity agreements with Dr. Timothy Saxe, its chief executive
officer, president and chief operating officer, and Peter G. Feist, its senior
vice president of marketing, and James B. Boyd, its chief accounting officer.

PRICE EROSION

     The semiconductor industry is characterized by intense competition.
Historically, average selling prices in the semiconductor industry in general,
and for GateField's products in particular, have declined significantly over the
life of each product. Moreover, GateField is highly dependent on Actel for the
marketing of the company's next generation of ProASIC products. While GateField
expects that the average selling prices of its products will be reduced over
time as the company achieves manufacturing cost reductions, GateField may from
time to time be required by competitive pressures to reduce the prices of its
products more quickly than such cost reductions can be achieved. In addition,
GateField occasionally approves price reductions on specific sales to meet
competition. If these reductions are not offset by reductions in manufacturing
costs or by a shift in the mix of products sold toward higher-margin products,
declines in the average selling prices of GateField's products will reduce gross
margins and could have a material adverse effect on the company's business,
financial condition and results of operations.

MANUFACTURING YIELDS

     GateField depends upon its independent wafer manufacturers to produce
wafers with acceptable yields and to deliver them to GateField in a timely
manner. Currently, substantially all of the company's revenues are derived from
products based on GateField's proprietary ProASIC technology. Successful
implementation of ProASIC technology requires a high degree of coordination
between GateField and its independent wafer manufacturers. In particular, with
respect to the manufacture of GateField's 0.25-micron products, Siemens will
require significant lead-time to reach volume production on new processes.
Accordingly, no assurance can be given that volume production or acceptable
yields with respect to GateField's new 0.25-micron product family will be
achieved on a timely basis or at all.

     The manufacture of high-performance ProASIC products is a complex process
that requires a high degree of technical skill, state-of-the-art equipment and
effective cooperation between the wafer supplier and the circuit designer to
produce acceptable yields. Minute impurities, errors in any step of the
fabrication process, defects in the masks used to print circuits on a wafer and
other factors can cause a substantial percentage of wafers to be rejected or
numerous die on each wafer to be nonfunctional. As is common in the
semiconductor industry, GateField has from time to time experienced in the past,
and expects that it will experience in the future, production yield problems and
delivery delays. Any prolonged inability to obtain adequate yields or deliveries
of the 0.25-micron products would adversely affect GateField's business,
financial condition and results of operations.


                                          18
<PAGE>

SEMICONDUCTOR INDUSTRY RISKS

     The semiconductor industry has historically been cyclical and periodically
subject to significant economic downturns, which are characterized by rapid
technological change, product obsolescence, diminished product demand,
accelerated price erosion and overcapacity. Currently, the semiconductor
industry is in the midst of such a downturn. These downturns often occur in
connection with, or in anticipation of, maturing product cycles (of both the
semiconductor companies and their "end customers") and declines in general
economic conditions. Some of these downturns have lasted for more than a year.
Also, during such periods, customers of semiconductor manufacturers benefiting
from shorter lead times may delay some purchases of semiconductors into future
periods. 

     The current semiconductor industry downturn began in the fourth quarter of
1995. The economic recessions in Japan and in other countries in the Asia
Pacific region have made the current downturn in the semiconductor industry
worse. The economies in these regions are contracting, and demand for
semiconductors and silicon wafers in these regions has decreased significantly.

     GateField has experienced in the past, and may experience again in the
future, substantial period-to-period fluctuations in business and results of
operations. This can adversely affect the market price of the company's common
stock. The main factors affecting these fluctuations is the performance of the
semiconductor industry, overall economic conditions, or other factors, including
legislation and regulations governing the import or export of semiconductor
products.

DEPENDENCE ON DESIGN WINS

     For GateField to sell its ProASIC products to a customer, the customer must
incorporate the company's ProASIC technology into the customer's product in the
design phase. GateField is highly dependent on Actel's sales marketing and FAE
team, in conjunction with the support of GateField resources, to persuade
potential customers to incorporate the company's standard ProASIC product into
new or updated products. These efforts may precede by many months (and sometimes
a year or more) the generation of volume sales, if any, by the customer. The
value of any design win, moreover, will depend in large part upon the ultimate
success of the customer's product. No assurance can be given that GateField will
win sufficient designs or that any design win will result in significant
revenues.

     In addition, there are some costs associated with marketing the company's
licensing of its ProASIC technology for embedded applications. Such costs would
not be recovered if GateField were unable to win additional licenses.

DEPENDENCE ON INDEPENDENT ASSEMBLY SUBCONTRACTORS

     GateField relies primarily on foreign subcontractors for the assembly and
packaging of its products and, to a lesser extent, for the testing of its
finished products. The company generally relies on a few key subcontractors to
provide particular services and has from time to time experienced difficulties
with the timeliness and quality of product deliveries. GateField has no
long-term contracts with its subcontractors, and certain of those subcontractors
are currently operating at or near full capacity. There can be no assurance that
these subcontractors will continue to be able and willing to meet GateField's
requirements for components or services. Any significant disruption in supplies
from, or degradation in the quality of components or services supplied by, these
subcontractors could delay shipments and result in the loss of customers or
revenues or otherwise have a material adverse effect on GateField's business,
financial condition and results of operations.

SUPPLY PROBLEMS

     In a typical semiconductor manufacturing process, silicon wafers produced
by a foundry are sorted and cut into individual die, which are then assembled
into individual packages and tested for performance. The manufacture, assembly
and testing of semiconductor products are highly complex and subject to a wide
variety of risks, including contaminants in materials, contaminants in the
environment and performance failures by personnel and equipment. Any of these
conditions could have a material adverse effect on GateField's business,
financial condition and results of operations.

     It is common in the semiconductor industry for independent wafer suppliers
to experience lower than anticipated yields of usable die. For example,
GateField experienced a yield problem at one of its independent wafer
manufacturers in fiscal years 1997 and 1998 that was severe enough to have a
material adverse effect on GateField's operating results. To the extent yields
of usable die decrease, the average cost to GateField of each usable die
increases, which reduces gross margin. 

     Wafer yields can decline without warning and may take substantial time to
analyze and correct, particularly for a company such as GateField that does not
operate its own manufacturing facility, but instead relies upon a single
independent wafer manufacturer. Yield problems may also increase the
time-to-market for GateField's products and create inventory shortages and
dissatisfied customers. As the company's products migrate to 0.25-micron
geometries, GateField anticipates that yields for such products will initially
be low. If such yields do not improve over time, the company's business,
financial condition and results of operations would be adversely affected. 


                                          19
<PAGE>

     Although GateField has overcome such difficulties in the past, no assurance
can be given that it will be able to do so with respect to its 0.25-micron
product family. Nor can any assurance be given that GateField will not
experience wafer supply problems in the future, or that any such problem would
not have a material adverse effect on GateField's business, financial condition
and results of operations. See "Dependence on Independent Wafer Manufacturer."

PATENT INFRINGEMENT

     Although GateField has obtained patents covering aspects of its ProASIC and
related technologies, no assurance can be given that GateField's patents will be
determined to be valid or that any assertions of infringement or invalidity by
other parties (or claims for indemnity from customers resulting from any
infringement claims) will not be successful.  Although the Company is not
currently a party to any material litigation, the semiconductor industry is
characterized by frequent claims regarding patent and other intellectual
property rights. As is typical in the semiconductor industry, the Company from
time to time receives communications from third parties asserting patents on
certain of the Company's technologies. In the event any third party were to make
a valid claim against the Company, the Company could be required to discontinue
the use of certain processes or cease the use, import and sale of infringing
products, to pay substantial damages and to develop non-infringing technologies
or to acquire licenses to the alleged infringed technology. The Company's
business, financial condition and results of operations could be materially and
adversely affected by such developments. Litigation, which could result in
substantial cost to and diversion of resources of the Company, may also be
necessary to enforce patents or other intellectual property rights of the
Company or to defend the Company against claimed infringement of the rights of
others.  The failure to obtain necessary licenses or the occurrence of
litigation relating to patent infringement or other intellectual property
matters could have a material adverse effect on the Company's business,
financial condition and results of operations.

PROTECTION OF INTELLECTUAL PROPERTY

     GateField has historically devoted significant resources to research and
development. It believes that the intellectual property derived from research
and development is a valuable asset that has been and will continue to be
important to the success of the company's business. GateField relies primarily
on a combination of nondisclosure agreements, other contractual provisions, and
patent and copyright laws to protect its proprietary rights. No assurance can be
given that the steps taken by GateField will be adequate to protect its
proprietary rights. In addition, the laws of certain territories in which
GateField's products are or may be developed, manufactured or sold, including
Asia and Europe, may not protect the company's products and intellectual
property rights to the same extent as the laws of the United States. Failure of
GateField to enforce its patents or copyrights or to protect its trade secrets
could have a material adverse effect on the company's business, financial
condition and results of operations.

RELIANCE ON INTERNATIONAL SALES

     In the past, GateField has operated sales offices in England, Germany and
Japan. Sales from these offices were in the local currency and, therefore,
exposed the company to currency exchange fluctuations. Sales to customers
located outside the United States accounted for approximately 30% in 1998, 48%
in 1997 and 31% in 1996. Of these sales, sales to customers located in the Asia
Pacific region and Japan accounted for approximately 25%, 28% and 18% of net
revenues for 1998, 1997 and 1996, respectively. 

     GateField is in the process of closing down the operations of all of its
foreign offices and expects such closures to occur by the end of the second
quarter of 1999. Prior to such time, the company will experience the risks
associated with having a high concentration of international sales.

     Although GateField is closing its foreign sales offices, it expects that
revenues derived from international sales will continue to represent a
significant portion of the company's total revenues because of its marketing
relationship with Actel. Further, such direct foreign sales are denominated in
U.S. dollars. Therefore, GateField's products become less price competitive in
countries with currencies that are declining in value against the dollar.
International sales are subject to a variety of risks, including longer payment
cycles, greater difficulty in accounts receivable collection, currency
restrictions, tariffs, trade barriers, taxes, export license requirements and
the impact of recessionary environments in economies outside the United States. 

DEPENDENCE ON NEW PRODUCT DEVELOPMENT; RAPID TECHNOLOGICAL CHANGE

     The market for GateField's products is characterized by rapidly changing
technology, frequent new product introductions, and declining average selling
prices over product life cycles. All of these factors make the timely
introduction of new products a critical objective of the company. GateField's
future success is highly dependent upon the timely completion and introduction
of new products at competitive price and performance levels, including the
timely introduction of its next generation of 0.25-micron ProASIC products. 

     In evaluating new product decisions, GateField must anticipate well in
advance both the future demand and the technology that will be available to
supply such demand. Failure to anticipate customer demand, delays in developing
new products with anticipated technological advances and failure to coordinate
the design and development of silicon and associated software products each
could have a material adverse effect on GateField's business, financial
condition and results of operation. 


                                          20
<PAGE>

     In addition, there are greater technological and operational risks
associated with new products. Several factors could have a material adverse
effect on GateField's business, financial condition and results of operations:
the inability of Siemens to produce GateField's 0.25-micron products; delays in
commencing or maintaining volume shipments of new products; the discovery of
product, process, software or programming failures; and any related product
returns.  No assurance can be given that any other new products will gain market
acceptance or that GateField will respond effectively to new technological
changes or new product announcements by others. Any failure of GateField or its
strategic partners to successfully define, develop, market, manufacture,
assemble or test competitive new products could have a material adverse effect
on its business, financial condition and results of operations.

DEPENDENCE ON INTERNATIONAL OPERATIONS

     GateField buys all of its wafers from foreign foundries and has most of its
commercial products assembled, packaged and tested by subcontractors located
outside the United States. These activities are subject to the uncertainties
associated with international business operations, including trade barriers and
other restrictions, changes in trade policies, foreign governmental regulations,
currency exchange fluctuations, reduced protection for intellectual property,
war and other military activities, terrorism, changes in political or economic
conditions and other disruptions or delays in production or shipments, any of
which could have a material adverse effect on the company's business, financial
condition and results of operations.

"BLANK CHECK" PREFERRED STOCK

     GateField's Certificate of Incorporation authorizes the issuance of up to
2,000,000 shares of "blank check" preferred stock (of which 1,682,000 shares
remain available for issuance), with such designations, rights and preferences
as may be determined from time to time by the GateField Board of Directors.
Accordingly, the board is empowered, without approval by holders of the
company's common stock, to issue preferred stock with dividend, liquidation,
redemption, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the common stock. Issuance of the
preferred stock could be used as a method of discouraging, delaying or
preventing a change in control of GateField. In addition, such issuance could
adversely affect the market price of GateField's common stock. In order to raise
capital, the company may issue additional shares of its preferred stock in the
future.

FORWARD-LOOKING STATEMENTS

     All forward-looking statements contained in this Annual Report on Form
10-K, including all forward-looking statements contained in any document
incorporated herein by reference, are made pursuant to the safe harbor
provisions of the Public Securities Litigation Reform Act of 1995. Words such as
"anticipates," "believes," "estimates," "expects," intends," "plans," "seeks"
and variations of such words and similar expressions are intended to identify
the forward-looking statements. The forward-looking statements include
projections relating to trends in markets, revenues, average selling prices,
gross margin, wafer yields, research and development expenditures, selling,
general and administrative expenditures and the Year 2000 compliance issue. 

     All forward-looking statements are based on current expectations and
projections about the semiconductor industry and programmable logic market, and
assumptions made by GateField's management that reflect its best judgment based
on other factors currently known by management, but they are not guarantees of
future performance. Accordingly, actual events and results may differ materially
from those expressed or forecast in the forward-looking statements due to the
risk factors identified herein or for other reasons. GateField undertakes no
obligation to update any forward-looking statement contained or incorporated by
reference in this Annual Report on Form 10-K.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     
     The GateField Corporation is exposed to market risk related to 
fluctuations in interest rates and in foreign currency exchange rates:

     INTEREST RATE EXPOSURE. GateField maintains its funds in money market and
Certificate of Deposit accounts at banks. The company's exposure to market risk
due to fluctuations in interest rates relates primarily to its interest earnings
on its cash deposits. These securities are subject to interest rate risk
inasmuch as their fair value will fall if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10% from the
levels prevailing at December 31, 1998, the fair value of the portfolio would
not decline by a material amount. GateField does not use derivative financial
instruments to mitigate risks. However, it does have an investment policy that
would allow it to invest in short-term investments such as money market
instruments and corporate debt securities. The company's policy does attempt to
reduce such risks by typically limiting the maturity date of such securities to
no more than eighteen months with a maximum average maturity to its whole
portfolio of such investments at six months, placing its investments with high
credit quality issuers and limiting the amount of credit exposure with any one
issuer.


                                          21
<PAGE>

     FOREIGN CURRENCY EXCHANGE RATE EXPOSURE. GateField's exposure to market
risk due to fluctuations in foreign currency exchange rates relates primarily to
the intercompany balances with its U.K., German and Japanese subsidiaries.
Although the company transacts business in various foreign countries, settlement
amounts are usually based on U.S. currency. Transaction gains or losses have not
been significant in the past, and there is no hedging activity on sterling,
mark, yen or other currencies. GateField is in the process of closing these
subsidiaries and expects to receive approximately $500,000 in cash transfers
during 1999 from these closings. The company would not experience a material
foreign exchange loss based on a hypothetical 10% adverse change in the price of
the sterling, mark or yen against the U.S. dollar. Consequently, GateField does
not expect that a reduction in the value of such accounts denominated in foreign
currencies resulting from even a sudden or significant fluctuation in foreign
exchange rates would have a direct material impact on the company's financial
position, results of operations or cash flows.

     Notwithstanding the foregoing analysis of the direct effects of interest
rate and foreign currency exchange rate fluctuations on the value of certain of
GateField's investments and accounts, the indirect effects of such fluctuations
could have a material adverse effect on the company's business, financial
condition and results of operations. For example, international demand for
GateField's products is affected by foreign currency exchange rates. In
addition, interest rate fluctuations may affect the buying patterns of the
company's customers. Furthermore, interest rate and currency exchange rate
fluctuations have broad influence on the general condition of the U.S. foreign
and global economics, which could materially adversely affect the company.






                                          22
<PAGE>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                               GATEFIELD CORPORATION
                            CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                December 31,        
                                                                          1998                1997  
                                                                                           As restated
(In thousands, except share amounts)                                                       see Note 12
-----------------------------------------------------------------------------------------------------
<S>                                                                     <C>                 <C>
ASSETS
Current assets
  Cash and cash equivalents                                             $  3,832            $  4,189
  Short-term investments                                                       -                  98
  Accounts receivable, less allowance for doubtful                              
    accounts of $244 in 1998 and $528 in 1997                                463               2,763
  Inventories                                                                117                 735
  Other current assets                                                       556                 524
                                                                        --------            --------
    Total current assets                                                   4,968               8,309

Property and equipment, net                                                1,783               2,660
Other assets                                                                 102                 287
                                                                        --------            --------
    Total assets                                                        $  6,853            $ 11,256
                                                                        --------            --------
                                                                        --------            --------

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
  Current portion of long-term obligations                              $    393            $    516
  Accounts payable                                                         1,372               3,741
  Accrued expenses                                                         1,941               3,118
  Deferred revenues                                                        4,772                 981
                                                                        --------            --------
    Total current liabilities                                              8,478               8,356

Long-term obligations                                                        330                  58
Other long-term liabilities                                                    -                  13
                                                                        --------            --------
    Total liabilities                                                      8,808               8,427
Commitments and contingencies (Note 6)
Redeemable Preferred Stock
  $0.10 par value; 2,000,000 shares authorized;
  shares issued and outstanding: 318,000 in 1998
  and 1,000,000 in 1997 - at redemption value                              3,083               4,594
Stockholders' deficit
  Common stock
    $0.10 par value; 65,000,000 shares authorized;
    shares issued and outstanding: 41,925,000 in
    1998 and 36,222,000 in 1997                                            4,191               3,622
  Additional paid-in capital                                              78,128              73,372
  Accumulated deficit                                                    (86,620)            (78,215)
  Accumulated other comprehensive loss                                      (737)               (544)
                                                                        --------            --------
    Total stockholders' deficit                                           (5,038)             (1,765)
                                                                        --------            --------
    Total liabilities and stockholders' deficit                         $  6,853            $ 11,256
                                                                        --------            --------
                                                                        --------            --------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                          23
<PAGE>

                                GATEFIELD CORPORATION
             CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                                 Years Ended December 31,         
                                                        1998                1997                1996
(In thousands, except per share amounts)                        (As restated, see Note 12)
-----------------------------------------------------------------------------------------------------
<S>                                                 <C>                 <C>                 <C>
  Revenues
    Product                                         $  2,624            $  5,385            $ 18,232
    Service                                            5,076              10,118              15,345
                                                    --------            --------            --------
      Total revenues                                   7,700              15,503              33,577
                                                    --------            --------            --------

  Cost of revenues
    Product                                            4,648               6,421               8,439
    Service                                            2,659               4,482               8,569
                                                    --------            --------            --------
      Total cost of revenues                           7,307              10,903              17,008
                                                    --------            --------            --------

      Gross profit                                       393               4,600              16,569
                                                    --------            --------            --------

  Operating expenses
    Sales and marketing                                4,112               9,664              14,325
    Research and development                           5,478               7,854              15,783
    General and administrative                         3,256               4,202               4,896
                                                    --------            --------            --------
      Total operating expenses                        12,846              21,720              35,004
                                                    --------            --------            --------

  Operating loss                                     (12,453)            (17,120)            (18,435)
                                                    --------            --------            --------

  Other income (expense)
    Interest expense, net                               (173)             (1,379)             (3,184)
    Other income (expense), net                        4,358               3,115                 243
                                                    --------            --------            --------
      Total other income (expense)                     4,185               1,736              (2,941)
                                                    --------            --------            --------
  Loss before extraordinary item                      (8,268)            (15,384)            (21,376)
  Extraordinary item - loss on early 
    extinguishment of debt (Note 5)                                       (1,048)
                                                    --------            --------            --------
  Net loss                                            (8,268)            (16,432)            (21,376)

  Other comprehensive loss:
    Current translation adjustments                     (193)               (496)                (29)
                                                    --------            --------            --------
  Comprehensive loss                                $ (8,461)           $(16,928)           $(21,405)
                                                    --------            --------            --------
                                                    --------            --------            --------

  Loss attributable to common stockholders          $ (8,405)           $(22,725)           $(21,376)
                                                    --------            --------            --------
                                                    --------            --------            --------

  Basic and diluted net loss per share:
    Loss before extraordinary item                  $  (0.20)           $  (0.72)           $  (1.03)
    Extraordinary item                                                     (0.03)
                                                    --------            --------            --------
  Basic and diluted net loss per share              $  (0.20)           $  (0.75)           $  (1.03)
                                                    --------            --------            --------
                                                    --------            --------            --------

  Basic and diluted weighted average 
    shares outstanding                                41,251              30,303              20,655
                                                    --------            --------            --------
                                                    --------            --------            --------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                          24
<PAGE>

                               GATEFIELD CORPORATION      
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)    
                                   COMMON STOCK     
           --------------------------------------------------------
<TABLE>
<CAPTION>
                                                             Additional     Accumulated
                                                               Paid-In          Other              Accumulated
(IN THOUSANDS)                    Shares         Amount        Capital    Comprehensive Loss          Deficit          Total
------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>            <C>          <C>           <C>                     <C>                <C>
Balances January  1, 1996        $ 19,752       $  1,975     $ 47,837              ($19)           ($34,114)          $ 15,679

Exercise of common stock options      370             37          609                 -                   -                646
 
Sale of common stock to employees      26              3           75                 -                   -                 78 

Issuance of common stock                
  for purchase of Attest, net         387             39        2,101                 -                   -              2,140 

Discount on convertible 
  debentures, as restated,              -              -        2,500                 -                   -              2,500 
  see Note 12                           

Issuance of common stock                
  for debentures, net - as          2,691            269        4,087                 -                   -              4,356 
  restated, see Note 12               

Current translation adjustment          -              -            -               (29)                  -                (29)

Net loss                                -              -            -                 -             (21,376)           (21,376)
------------------------------------------------------------------------------------------------------------------------------
Balances, December  31, 1996 - as  23,226          2,323      $57,209               (48)            (55,490)             3,994 
  restated, see Note 12               

Exercise of common stock options      278             28          225                 -                   -                253 

Compensation for accelerated            
  vesting of stock options              -              -           47                 -                   -                 47 

Sale of common stock to employees      93              9           70                 -                   -                 79 

Issuance of common stock                
  to nonemployees for services         55              5           65                 -                   -                 70 

Issuance of common stock                
  for debentures, net - as          7,418            742        5,256                 -                   -              5,998 
  restated, see Note 12               

Discount on convertible 
  debentures - as                       -              -          875                 -                   -                875 
  restated, see Note 12               

Accrued dividends on preferred 
  stock - as restated, see Note 12      -              -           63                 -                (283)              (220)
  restated, see Note 12                 

Conversion of preferred stock to        
  common stock - as                 4,547            454        1,351                 -                   -              1,805
    restated, see Note 12               

Redemption of preferred stock - as      -              -            -                 -                (144)              (144)
  restated, see Note 12                 

Issuance of common stock                
  by exercise of warrants             105             11           45                 -                   -                 56 

Subscribed common stock               500             50          711                 -                   -                761 

Accretion of preferred stock            -              -        5,866                 -              (5,866)                 - 

Issuance of warrants - as               -              -        1,589                 -                   -              1,589 
    restated, see Note 12               

Current translation adjustment          -              -            -              (496)                  -               (496)

Net loss                                -              -            -                 -             (16,432)           (16,432)
------------------------------------------------------------------------------------------------------------------------------
Balances, December  31, 1997 - as  36,222          3,622       73,372              (544)            (78,215)            (1,765)
    restated, see Note 12               

Exercise of common stock options      743             74          314                 -                   -                388 

Sale of common stock to employees     245             24          126                 -                   -                150 

Issuance of common stock                
  to nonemployees for services         13              1            5                 -                   -                  6 

Issuance of common stock            4,583            458        4,124                 -                   -              4,582 

Cash received for warrants              -              -          161                 -                   -                161 

Issuance of common stock                
  by exercise of warrants             120             12           26                 -                   -                 38 

Accretion of preferred stock            -              -            -                 -                (137)              (137)

Current translation adjustment          -              -            -              (193)                  -               (193)

Net loss                                -              -            -                 -              (8,268)            (8,268) 
------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998        41,926       $  4,191     $ 78,128          $   (737)           $(86,620)           $(5,038)
                                 --------       --------     --------          --------            --------            --------
                                 --------       --------     --------          --------            --------            --------
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.        


                                     25
<PAGE>

                              GATEFIELD CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                        Years Ended December 31,
                                                                                     1998        1997        1996
(IN THOUSANDS)                                                                               (AS RESTATED,
                                                                                              SEE NOTE 12)
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                <C>         <C>         <C>
Operating activities
   Net loss                                                                        $ (8,268)   $(16,432)   $(21,376)
   Reconciliation to net cash used in operating activities
     Depreciation and amortization                                                    1,866       3,124       4,307
     Noncash subordinated convertible debt interest and debt extinquishment loss       --         1,745       2,773
     Loss on disposition of property and equipment                                       70         722        --
     Gain on sale of assets, net                                                     (4,462)     (2,741)       --
     Stock compensation expense                                                          56           9        --
     Sales under capital leases                                                        --          (606)     (1,420)
     Collections under capital leases                                                  --           620         459
     Changes in assets and liabilities
       Accounts receivable                                                            1,484       9,543         724
       Inventories                                                                      618         143        (876)
       Other assets                                                                     159          31         (90)
       Accounts payable and accrued expenses                                         (3,578)     (5,951)      3,174
       Deferred revenues                                                              3,819      (1,549)       (292)
                                                                                    --------    --------   --------
                                                                                    --------    --------   --------
         Net cash used in operating activities                                       (8,236)    (11,342)    (12,617)
                                                                                    --------    --------   --------
                                                                                    --------    --------   --------
Investing activities
   Property and equipment purchases, net                                               (332)     (1,568)     (1,773)
   Proceeds from sale of assets                                                       5,400      12,750        --
   Proceeds from sale of short-term investments                                          98        --          --
   Capitalized software                                                                --          --        (1,698)
                                                                                    --------    --------   --------
                                                                                    --------    --------   --------
         Net cash provided by (used in) investing activities                          5,166      11,182      (3,471)
                                                                                    --------    --------   --------
                                                                                    --------    --------   --------
Financing activities
   Proceeds from issuance of convertible debenture notes, net                          --         2,650      10,000
   Proceeds from issuance of common stock                                             5,108         458         724
   Proceeds from issuance of redeemable preferred stock                               3,000       4,583        --
   Redemption of preferred stock                                                     (4,648)     (1,827)       --
   Proceeds from subscribed stock                                                      --           761        --
   Proceeds from warrants                                                               161       1,589        --
   Bank financing, net                                                                 --        (3,203)      3,203
   Borrowings under debt obligations                                                   --           199         882
   Repayments of debt obligations                                                      (676)     (2,161)       (930)
                                                                                    --------    --------   --------
                                                                                    --------    --------   --------
         Net cash provided by financing activities                                    2,945       3,049      13,879
                                                                                    --------    --------   --------
                                                                                    --------    --------   --------

Effect of exchange rate changes on cash and cash equivalents                           (232)       (403)        190
                                                                                    --------    --------   --------
                                                                                    --------    --------   --------

Net change in cash and cash equivalents                                                (357)      2,486      (2,019)

Cash and cash equivalents, beginning of year                                          4,189       1,703       3,722
                                                                                    --------    --------   --------
                                                                                    --------    --------   --------

Cash and cash equivalents, end of year                                             $  3,832    $  4,189    $  1,703
                                                                                    --------    --------   --------
                                                                                    --------    --------   --------

Supplemental disclosure of cash flow information
   Noncash activities
     Common stock issued for convertible debentures                                $   --      $  5,998    $  4,356
     Preferred stock issued for convertible debentures                             $   --      $  3,553    $   --
     Accretion of redeemable preferred stock (Note 10)                             $   --      $  5,866    $   --
     Accrued dividends on preferred stock                                          $    137    $    283    $   --
     Common stock issued for preferred stock                                       $   --      $  1,805    $   --
     Common stock issued for the acquisition of all the
       outstanding shares of Attest Software, Inc.                                 $   --      $   --      $  2,140
     Promissory notes issued in exchange for reduction of
       accounts payable                                                            $   --      $   --      $    901
     Equipment acquired under capital leases                                       $    825    $     19    $    490
   Cash activities
     Cash paid during the year for interest                                        $    429    $    363    $    471

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>


                                       26
<PAGE>

                                GATEFIELD CORPORATION

                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



NOTE 1:  ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND OPERATIONS

     GateField Corporation, formerly Zycad Corporation (the "Company"), based in
Fremont, California, designs, develops, manufactures and markets high density,
high performance programmable logic solutions and related development software.
During 1998, the Company disposed of its system engineering services and custom
solutions assets (see Note 4).  During 1997, the Company disposed of its
verification and simulation assets (see Note 4).

     On July 16, 1998 the Company's common stock was delisted from the Nasdaq
National Market (a distinct tier of the Nasdaq Stock Market) and moved to the
Nasdaq SmallCap Market.  Effective September 17, 1998 the Company's stock was
delisted from The Nasdaq SmallCap Market for failure to meet the on-going
minimum bid price requirement.  Since that time, the Company's stock has traded
on the OTC Bulletin Board.

     The Company reviewed its strategies, organization and expenses in the
fourth quarter of 1998 and as a result of management actions, reduced its
monthly cash expenditures.  Management's plan in 1999 is to reduce operating
expenses from 1998 levels, begin sales of .25-micron standard ProASIC products,
and to obtain additional financing.  Because the Company is essentially a
restart, its historical financial performance cannot and should not be used to
indicate future financial performance.

BASIS OF PRESENTATION

     The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.  As shown in the financial
statements, during 1998, 1997 and 1996, the Company incurred net losses of
approximately $8,300,000, $16,400,000 and $21,400,000, respectively.
Additionally, the Company had stockholders deficits of approximately $5,038,000
and $1,765,000 at December 31, 1998 and 1997, respectively, and is highly
dependent on its ability to obtain sufficient additional financing in order to
fund the current and planned operating levels.  These factors among others
raises substantial doubt about the ability of the Company to continue as a going
concern for a reasonable period of time.

     The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.  The Company's continuation as a going
concern is dependent upon its ability to obtain additional financing to complete
its new product development and begin commercial sales, and ultimately obtain
sufficient customer demand to attain profitable operations.  Management intends
to reduce operating expenses, begin sales of new products currently in
development and obtain additional financing to cover its additional cash flow
requirements until it reaches a break-even level of operations.  No assurance
can be given that the Company will be successful in these efforts.

RECLASSIFICATIONS

     Certain prior period amounts have been reclassified to conform to the 1998
presentation.  Such reclassification had no effect on previously reported
results of operations or financial position.

PRINCIPLES OF CONSOLIDATION AND PRESENTATION

     The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All intercompany accounts and
transactions have been eliminated in consolidation. The functional currency of
the Company's foreign subsidiaries is the local currency.


                                          27
<PAGE>

ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS

     The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Such estimates include allowances for uncollectable
receivables, inventory valuation reserves, warranty costs, sales returns and
a valuation allowance for deferred tax assets.  Actual results could differ
from those estimates.


BUSINESS RISKS AND UNCERTAINTIES

     The company participates in a dynamic high technology industry and believes
that changes in any of the following areas could have a material adverse effect
on the company's future financial position or results of operations: dependence
on independent wafer manufacturers and assembly subcontractors; changes in
certain strategic partners or customer relationships; competitive pressures in
the form of new products or price reductions on existing products; advances and
trends in new technologies; ability to capture design wins; cyclical economic
effects of the semiconductor industry; litigation or claims against the company
based on intellectual property, patent, product, regulatory or other factors and
the company's ability to attract and retain employees necessary to support its
growth.

CASH EQUIVALENTS

     Cash and cash equivalents consist of cash on deposit with banks and money
market instruments with maturities of three months or less when acquired.

SHORT-TERM INVESTMENTS

     Short-term investments consist of Certificates of Deposit, stated at cost
plus accrued interest, which approximates market.

CONCENTRATION OF CREDIT RISK

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents and
trade accounts receivable. The Company invests in high credit quality short-term
money market instruments and certificates of deposit and limits the amount of
credit exposure to any one entity. The majority of the Company's trade
accounts receivables are derived from sales to manufacturers in the
semiconductor, computer, military and aerospace industries. The Company performs
ongoing credit evaluations of its customers' financial condition and limits the
amount of credit extended when deemed necessary, but generally requires no
collateral. The Company maintains reserves for estimated potential credit
losses.

INVENTORIES

     Inventories are stated at the lower of standard cost, which approximates
actual cost on a first-in, first-out basis, or market.

PROPERTY AND EQUIPMENT

     Property and equipment are stated at cost. Equipment acquired under
capital lease obligations is stated at the lower of fair value or the present
value of future minimum lease payments at the inception of the lease.
Depreciation and amortization is provided over the shorter of the estimated
useful lives of the assets or the life of the lease, using the straight-line
method.

INCOME TAXES


                                          28
<PAGE>

     The Company follows Statement of Financial Accounting Standards No. 109
(SFAS No. 109), "Accounting for Income Taxes," which requires an asset and
liability approach to account for income taxes and requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax basis of assets and liabilities and net operating loss and tax credit
carryforwards.  Valuation allowances are provided when necessary to reduce net
deferred tax assets to an amount that is more likely then not to be realized.

STOCK-BASED COMPENSATION

     The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board No. 25
(APB No. 25), "Accounting for Stock Issued to Employees".

REVENUE RECOGNITION

     The Company recognizes product revenues at the time of shipment, but may
delay revenue recognition until products are installed or accepted, depending on
the particular product and contract terms. Design and verification service
revenues are recognized as the services are performed. Revenues from the sale of
maintenance contracts are recognized over the term of the respective contract.

     In 1998, the Company adopted Statement of Position ("SOP") 97-2, "Software
Revenue Recognition," which requires revenue earned on software arrangements
involving multiple elements to be allocated to each element based on the
relative fair values of the elements.  Revenue for software licenses is
recognized upon delivery provided that collection is probable.  Software support
and maintenance revenue are deferred and amortized over the maintenance period
on a straight-line basis.  Adoption of this statement did not have a material
impact on the Company's financial position, results of operations and cash
flows.

     License Fees, included in Product Revenues, are recognized when the Company
has completed development, delivered the technology and there are no further
significant obligations.

NET INCOME (LOSS) PER SHARE

     Basic earnings per share ("EPS") excludes dilution and is computed by
dividing net income or loss attributable to common stockholders by the weighted
average of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (convertible preferred stock, warrants to purchase common stock and
common stock options using the treasury stock method) were exercised or
converted into common stock.  The following potential weighted average common
shares in the diluted EPS computation are excluded in net loss periods as their
effect would be antidilutive.

<TABLE>
<CAPTION>
                                        1998       1997       1996
                                       -------    -------    -------
     <S>                                <C>        <C>        <C>
     Conversion of preferred stock      5,142      1,718          -
     Warrants                           3,981      1,356        142
     Stock options                      2,685      2,686      3,102
</TABLE>

     In the computation of loss per share, loss attributable to common
stockholders includes the accretion and dividends on Preferred Stock totaling
$6,293,000 in 1997 and the accrual of dividends on Preferred Stock of $137,000
in 1998.

COMPREHENSIVE LOSS

     In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS"), No. 130, "Reporting Comprehensive Income," which requires an
enterprise to report, by major components and as a single total, the change in
net


                                          29
<PAGE>

assets during the period from nonowner sources.  Statements of comprehensive
loss for 1998, 1997 and 1996 have been included with the statements of
operations.

GEOGRAPHIC AND OPERATING SEGMENT INFORMATION

     In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's business segments and related
disclosures about its products, services, geographic areas and major customers.
The Company has two reportable segments under SFAS No. 131 (Note 9).

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities."  This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value.  Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting.  SFAS will be effective for the
Company's fiscal year ending December 31, 2000.  Management believes that this
statement will not have a significant impact on the Company's financial
position, results of operations or cash flows.

NOTE 2:  STRATEGIC ALLIANCES

PRODUCT MARKETING AGREEMENT

     In August 1998, the Company and Actel Corporation ("Actel") entered into a
Product Marketing Agreement (the "Marketing Agreement"). Under the terms of the
Marketing Agreement, Actel received exclusive, worldwide distribution rights to
the Company's standard ProASIC FPGA products utilizing less than .35 micron
geometries, including FPGA products that are integrated with SRAM or Flash
memory and all resulting next generation reduced process geometry ProASIC FPGA
products. For these rights, Actel agreed to pay the Company an initial fee of
$1.0 million and a $1.0 million fee upon qualification of the initial .25 micron
product. Revenue recognition of the $1.0 million initial fee received has been
deferred until delivery to Actel of products below .35 micron.

ACTEL LICENSE AGREEMENT

     In August 1998, the Company and Actel entered into a license agreement
pursuant to which the Company granted to Actel a fully paid, non-exclusive,
non-transferable license to sell and upon certain events, make, have made,
import and use the Company's standard ProASIC FPGA products below .35 micron and
all resulting next generation reduced process geometry ProASIC FPGA products
(the "Actel License Agreement"). Actel agreed to pay the Company a $1.0 million
fee for such license. Revenue recognition of the $1.0 million license fee
received has been deferred until delivery of products below .35 micron.

ROHM LICENSE AGREEMENT

     In July 1998, the Company and Rohm Co., Ltd. ("Rohm") entered into a
license agreement (the "Rohm License Agreement"). Pursuant to the Rohm License
Agreement, the Company granted to Rohm for a license fee of $2.5 million: (i) a
worldwide, nonexclusive and royalty-free license of the Company's ProASIC
Technology for Standard ProASIC and embedded products down to 0.35 micron with
no limitation on density; and (ii) a license for 0.25 micron and below embedded
products with a per unit royalty. Revenue recognition of the $2.5 million
license fee received has been deferred until delivery of .35 micron products.

SIEMENS LICENSE AGREEMENT

     In November 1997, the Company and Siemens AG ("Siemens") entered into a
license agreement (the "Siemens License Agreement").  Pursuant to the Siemens
License Agreement, the Company sold to Siemens for an unlimited, worldwide,
non-exclusive right and license to use the technology, software, engineering
services, and equipment related to ProASIC products; 500,000 shares of common
stock and warrants to purchase 9.9% of the Company's outstanding common


                                          30
<PAGE>

stock for a fee of $3,250,000. In 1997, the Company received $1,500,000, of
which $761,000 was allocated to the shares of Common Stock  (see Note 10) and
$739,000 was allocated to Warrants net of a warrant receivable of $161,000 (see
Note 10).   In 1998,  the Company received $1,750,000, of which $750,000 was
recorded as Service Revenue for consulting services, and $839,000 was recorded
as Product Revenue for license fees, and $161,000 was recorded as a receipt of
cash for warrants issued in 1997.

NOTE 3: PURCHASED TECHNOLOGY

     In June 1996, the Company acquired Attest Software, Inc. (Attest), located
in Santa Clara, California, in exchange for approximately 387,000 shares of the
Company's Common Stock, valued at approximately $2,140,000, for all the
outstanding Common Stock of Attest. This transaction was accounted for as a
purchase; accordingly, the operations of Attest have been included in the
consolidated results of the Company since the day of acquisition. The operating
results of Attest prior to the acquisition were not significant. As part of this
transaction, the technology purchased, used for fault simulation and automatic
test pattern generation tools, was valued at $2,055,000 which is being amortized
over seven years. Accumulated amortization was $165,000 at December 31, 1996. In
August 1997, the Company sold these assets related to the TDX product line.
(See Note 4.

NOTE 4:  SALE OF ASSETS

DESIGN SERVICES

     In August 1998, the Company sold certain of the assets relating to its 
Design Services products, providing prototyping design services and 
verification services for electronic systems, integrated circuits and other 
electronic components, located in Mt. Arlington, New Jersey to Actel. The 
purchase price for such assets was (i) $5.4 million plus (ii) contingent 
payments to be paid over a three-year period on a quarterly basis based on 
Design Services achieving certain profitability levels which payments shall 
not exceed $1.0 million in the aggregate. The Design Services represented 
approximately 17% of 1998 revenues. See table below for details of the 
transaction.

VERIFICATION PRODUCT

     In August 1997, the Company sold its assets relating to its
verification products, excluding the maintenance and support business, for a
total of $4,450,000. As defined in the purchase agreement, all of the rights,
title and interest to the intangible assets of the XP and PXP hardware fault
simulation product business were sold for $2,200,000. In a separate agreement,
all of the assets of the Attest division were sold for $2,250,000.  The
verification products represented approximately 16% of 1997 revenues.  See table
below for details of the transaction.

     In October 1997, as a result of the Company selling its rights, title, and
interest in the assets of the XP and PXP hardware fault simulation product, the
Company transferred its related maintenance contracts to Zycad TSS Corporation
("Zycad TSS") in October 1997 for future royalties.  Zycad TSS is a company
formed by former employees of the Company to perform maintenance services. The
agreement with Zycad TSS entitles the Company to receive 30% of all domestic
XP/PXP maintenance revenue in the first two years and 10% in the third year. In
addition, the Company is generally entitled to receive 40% of Japanese revenues
for the first five years up to a $1.8 million and then 10% thereafter.

LIGHTSPEED PRODUCT

     In April 1997, the Company sold its software and hardware simulation
technology relating to its LightSpeed product family for $5,000,000.  Revenues
in 1997 were nominal.  See table below for details of the transaction.

QUALITY SYSTEMS SOFTWARE, INC.

     In January 1996, the Company and Quality Systems Software, Ltd. (QSS Ltd.),
an U.K. company and third party owner of  DOORS technology, established a
joint venture, QSS Inc., to continue the Company's distribution operations of
the DOORS technology and other products in the North American market.  In
January 1997, QSS Inc. was restructured such that QSS Ltd. became a subsidiary
of QSS Inc. in which the Company owned a 22% interest.  In May 1997, the Company
sold its interest in QSS Inc. for $3,500,000.  See table below for details of
the transaction.


                                          31
<PAGE>

The gain (loss) on sale are in other income (expense) and details of these
transactions are as follows (in thousands):

<TABLE>
<CAPTION>
                                           Years Ended December 31,
                              -------------------------------------------------
                                1998                     1997
                              --------  ---------------------------------------
                               DESIGN
                              SERVICES  VERIFICATION  LIGHTSPEED       QSS
                              --------  ------------  ----------       ---
     <S>                      <C>       <C>           <C>            <C>
     Sales Price              $  5,400     $  4,450     $  5,000     $  3,500
     Net Assets disposed          (687)      (5,130)      (3,201)        (179)
     Liabilities incurred         (251)        (245)      (1,454)          -
                              --------     --------     --------     --------

     Gain (loss) on sale      $  4,462     $   (925)    $    345     $  3,321
                              --------     --------     --------     --------
                              --------     --------     --------     --------
</TABLE>

NOTE 5:  LONG-TERM DEBT

Debt obligations consisted of the following:

<TABLE>
<CAPTION>
                                                December 31,
                                           ---------------------
                                             1998         1997
                                           ----------  ---------
     <S>                                   <C>         <C>
     Capital leases (see Note 6)           $    723     $    354
     Term loans                                   -          220
                                           ----------  ---------
                                                723          574
     Current portion                           (393)        (516)
                                           ----------  ---------
     Long term debt                        $    330     $     58
                                           ----------  ---------
                                           ----------  ---------
</TABLE>

TERM LOANS

     In 1995 and 1996, the Company entered into long-term loan agreements that
bear interest rates of 10.66% to 15.33% and mature over 36 months. These loans
are secured by specific capital assets.  In 1996 and 1997, the Company obtained
promissory notes from key vendors that bear interest rates from 12% to 18%. At
December 31, 1997 all amounts were classified as current positions of long-term
obligations.

SUBORDINATED CONVERTIBLE DEBENTURE NOTES

     In May 1996, the Company sold a total of $10,000,000 of
subordinated convertible debenture notes (the "Notes") to institutional
investors as part of a private placement. The Notes accrue interest at an annual
rate of 6%, beginning on the date of issue, with the principal due and payable
three years from the date of issue if and to the extent that the Notes are not
previously converted. The Notes were convertible at the option of the
noteholders (subject to the maximum share limitations set forth below) into
Common Stock at a price equal to 80% to 85% of the average closing bid price for
the Common Stock on the Nasdaq National Market for the five trading days prior
to the date of conversion.


                                          32
<PAGE>

     In 1996, as required as part of the Notes agreement the Company issued 
2 1/2 year warrants to purchase 59,500 shares of Common Stock at an exercise 
price of $10 per share. The warrants were redeemable by the Company for $0.01 
for each 10,000-share warrant if the Company's stock price is above $12. No 
value was assigned to the warrants as the value was deemed to be nominal. 
During 1997, an aggregate of $5,998,000 ($5,700,000 of the original principal 
of the Notes and $298,000 of accrued interest) were converted into 7,418,000 
shares of Common Stock. During 1996, an aggregate of $4,356,000 ($4,300,000 
of the original principal of the Notes and $56,000 of accrued interest) were 
converted into 2,691,000 shares of Common Stock.

     The conversion of the Notes at 80% to 85% of the average closing bid
price of the Company's Common Stock results in the Notes being issued at a 15%
to 20% discount (the Conversion Discount). The Conversion Discount of $2,500,000
was recognized during 1996 by the Company as non-cash interest expense from the
date of issuance through the date the security was most favorably convertible to
the noteholders, with a corresponding increase to the additional paid-in
capital.  In addition, the stated 6% annual interest is being recognized ratably
over the term of the Notes.

     In February 1997, the Company completed a $3,500,000 private placement
with investors whereby the Company issued 6% Subordinated Convertible Debentures
(the Debentures) with warrants to purchase 500,000 shares of Common Stock at
$2.25 per share. The warrants are valued at $850,000 and recorded as a discount
to the debentures.  The Debentures accrue interest at an annual rate of 6%,
beginning on the date of issue, with principal due and payable three years from
the date of issue, if and to the extent that the Debentures are not previously
converted.  The Debentures are convertible at the option of the holder into the
Company's Common Stock at a discount up to 20% from market price (the
Conversion Discount) resulting in debenture discount of $875,000.  In May 1997,
the Debentures were converted into 100,000 shares of the Company's Series A
Convertible Preferred Stock ("Series A Stock") having an aggregate stated
value of $3,500,000.  In addition, Preferred Stock Purchase Warrants (the
"Preferred Warrants") were issued to the holders of the Debentures to purchase a
total of 42,858 shares of the Series A Stock.  The conversion of the debentures
to Series A Stock resulted in a debt extinguishment loss of $1,048,000.  During
the year ended December 31, 1997, a total of $456,000 was recorded as interest
expense relating to the Debentures and $272,000 was recorded as accrued
dividends on the Series A Stock. The interest expense and dividend
principally include a charge for the Conversion Discount and default discounts.
During 1997, 51,972 shares of the Series A Preferred Stock were converted to
4,546,928 shares of the Company's Common Stock. In August 1997, the Company
redeemed all of the remaining outstanding shares of the Company's Series A Stock
and the Preferred Warrants for $1,827,000 and all of the outstanding common
stock warrants were exchanged for 350,000 warrants for the Company's Common
Stock at an exercise price of $0.53 per share.  A preferred dividend of $144,000
was recognized for the excess of the redemption price over the carrying amount
of the preferred stock.  During 1997, 105,000 of the warrants were exercised for
$56,000.


                                          33
<PAGE>

NOTE 6:  LEASES AND COMMITMENTS

     The Company leases its facilities and other equipment under operating
lease agreements, which expire at various dates through 2002. The Company also
leases certain manufacturing equipment under capital leases that expire in
2001.  Approximate future minimum lease payments under these leases are as
follows (in thousands):

<TABLE>
<CAPTION>
                                    Capital           Operating        Sub-Lease
Year                                Leases              Leases           Income
--------------------------------------------------------------------------------
<S>                                 <C>               <C>              <C>
1999                                $   456            $   468          $   371
2000                                    274                  -                -
2001                                     84                  -                -
2002                                      -                  -                -
Thereafter                                -                  -                -
--------------------------------------------------------------------------------
                                        814            $   468          $   371
                                                       -------          -------
                                                       -------          -------
Less amount representing
  imputed interest                       91
                                    -------
                                        723
Less current portion                    393
                                    -------
                                    $   330
                                    -------
                                    -------
</TABLE>


     Accumulated depreciation of equipment under capital leases totaled $747,000
and $620,000 at December 31, 1998 and 1997, respectively.  Depreciation expense
on equipment under capital leases was $127,000 in 1998, $203,000 in 1997 and
$264,000 in 1996.

     The Company leases office facilities under operating leases, which expire
in June and August 1999.  Rent expense of $948,000, $1,582,000 and $1,732,000
was incurred in 1998, 1997, and 1996, respectively.  A portion of the Company's
facilities have been sublet and sublease income received was $491,000, $76,000
and $0 during 1998, 1997 and 1996, respectively.


                                          34
<PAGE>

NOTE 7:  SELECTED BALANCE SHEET INFORMATION

Selected Balance Sheet information is summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                                          December 31,
                                                      1998            1997
                                                   --------------------------
     <S>                                           <C>             <C>
     Accounts receivable
       Accounts receivable                         $     707       $    3,170
       Current portion lease receivables                   -              121
       Less allowance for doubtful accounts             (244)            (528)
                                                   ---------       ----------
                                                   $     463       $    2,763
                                                   ---------       ----------
                                                   ---------       ----------
     Inventories
       Raw materials and supplies                          -       $      306
       Finished goods                                    117              429
                                                   ---------       ----------
                                                   $     117(a)    $      735
                                                   ---------       ----------
                                                   ---------       ----------
     Property and equipment
       Engineering, manufacturing, and
         general office equipment                  $   3,761       $    4,260
       Leasehold improvements                          1,064            1,539
       Equipment under capital lease                   1,752            1,085
                                                   ---------       ----------
                                                       6,577            6,884
       Accumulated depreciation and amortization      (4,794)          (4,224)
                                                   ---------       ----------
                                                   $   1,783       $    2,660
                                                   ---------       ----------
                                                   ---------       ----------
     Accrued expenses
       Salaries and commissions                    $     521       $    1,023
       Other accrued expenses                          1,420            2,095
                                                   ---------       ----------
                                                   $   1,941       $    3,118
                                                   ---------       ----------
                                                   ---------       ----------
</TABLE>


(a)  During 1998, the Company wrote-down the carrying value of its .72-micron
     inventories by $1,800,000 due to a lack of demand for the product.


                                          35
 <PAGE>

NOTE 8:  INCOME TAXES

The Company was not required to pay income taxes in 1998, 1997 or 1996 due to
its net operating loss carryforwards.


Significant components of the Company's deferred tax asset are
as follows (in thousands):


<TABLE>
<CAPTION>
                                                            December 31,
                                                            1998           1997
                                                       ------------------------
<S>                                                    <C>           <C>
     Deferred Tax Assets:
     Net operating loss carryforwards                  $ 24,457      $  21,362
     Tax credit carryforwards                             3,529          3,422
     Capitalized research and development costs             433            893
     Depreciation                                           853          1,391
     Accruals and reserves not currently deductible       3,318          1,108
                                                       ------------------------
          Total gross deferred tax assets                32,590         28,176

     Valuation allowance                                (32,590)       (28,176)
                                                       ------------------------
          Total deferred tax assets                    $   -         $    -
                                                       ------------------------
                                                       ------------------------
</TABLE>


     The net change in the total valuation allowance for the year ended December
31, 1998 was a net increase of $4,414,000.  The increase in the valuation
allowance was primarily a result of increased net operating loss and tax credit
carryforwards and increased accruals and reserves not currently deductible and
capitalized research and development costs generated in 1998 which the Company
provided a full valuation allowance against based on the Company's evaluation of
the likelihood of realization of future tax benefits resulting from the deferred
tax assets.

     Net pretax foreign losses were ($405,000), ($93,000) and ($620,000) in
1998, 1997 and 1996, respectively.  The Company has net operating loss
carryforwards of approximately $65,000,000 for federal tax purposes and
$11,000,000 for state tax purposes that will begin to expire in 2005 and 2001,
respectively.  The Company's tax credit carryforwards of $2,867,000 and
$1,001,000 are available to reduce future federal and California income taxes,
respectively. These credits will expire beginning in 1999.  The Company also has
foreign net operating loss carryforwards of approximately $5,000,000 that may be
used to offset future foreign taxable income.

     The Tax Reform Act of 1986 and California Conformity Act of 1987 impose
substantial restrictions on the utilization of net operating losses and tax
credit carryforwards in the event of an "ownership change" as defined by the
Internal Revenue Code. If there should be such a change, the Company's ability
to utilize the stated carryforwards could be significantly limited.


                                          36

<PAGE>

NOTE 9:  GEOGRAPHIC SEGMENT AND OPERATING INFORMATION

     Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision-maker. Using this definition the Company operates in
two reportable segments: product and services and follows the requirements of
SFAS 131, "Disclosures about Segments of an Enterprise and Related Information."
In 1996 through 1998 these segments reflect the Company's transition from the
design, development and marketing of special purpose systems for the EDA market
to the design, development, and marketing of high density, high performance
programmable logic solutions and related development software. Included in the
product segment are all hardware, software and license revenue and costs related
o the Company's proprietary technology. Included in the service segment are
fees and costs associated with the maintenance of hardware systems related
software and consulting services related to the design of programmable logic
solutions. The Company evaluated performance and allocates resources based on
the gross margin of the reportable segments and does not identify assets to any
segment.

NET REVENUES BY REPORTABLE SEGMENT (IN THOUSANDS):

<TABLE>
<CAPTION>
                                             December 31,
                              ---------------------------------------
                                  1998          1997          1996
                              ------------  ------------  ------------
<S>                            <C>           <C>           <C>
       Product
        Revenues               $   2,624     $   5,385     $ 18,232

        Cost of Revenue            4,648         6,421        8,439
                              ------------  ------------  ------------
            Gross Margin       $  (2,024)    $  (1,036)    $  9,793
                              ------------  ------------  ------------
                              ------------  ------------  ------------
       Services
        Revenues               $   5,076     $  10,118     $ 15,345

        Cost of Revenues           2,659         4,482        8,569
                              ------------  ------------  ------------
            Gross Margin       $   2,417     $   5,636     $  6,776
                              ------------  ------------  ------------
                              ------------  ------------  ------------
</TABLE>

NET REVENUES TO UNAFFILIATED CUSTOMERS BY GEOGRAPHIC REGION (IN THOUSANDS):


<TABLE>
<CAPTION>
                               1998           1997           1996
                          ---------      ---------      ---------
<S>                        <C>            <C>            <C>
          United States    $  5,613       $  9,565       $ 25,396
          Japan               1,947          4,382          5,874
          Other                 140          1,556          2,307
                          ---------      ---------      ---------
                           $  7,700       $ 15,503       $ 33,577
                          ---------      ---------      ---------
                          ---------      ---------      ---------
</TABLE>


     The amounts reported for Japan and other reflect amounts sold by foreign
subsidiaries. Included in the United States revenue amounts are sales directly
to Japan and other Asian countries amounting to $217,000 in 1998, $1,648,000 in
1997 and $2,116,000 in 1996. Outside the United States, the Company operated
three subsidiaries in Europe, one subsidiary in Japan and also supports a branch
office in Taiwan. All these subsidiaries have been or are in the process of
being shut down and dissolved.  For the years ended December 31, 1998, 1997 and
1996, export sales (including sales by foreign subsidiaries),


                                          37

<PAGE>

principally to Europe and Japan, comprised approximately 38%, 38% and 31% of
consolidated revenues, respectively. During 1998, Siemens accounted for 22% of
consolidated revenues.  During 1997 and 1996, one customer, Intel Corporation,
accounted for 16% and 10% of consolidated revenues, respectively.





LONG-LIVED ASSETS BEFORE DEPRECIATION BY GEOGRAPHIC LOCATION ARE AS FOLLOWS (IN
THOUSANDS):


<TABLE>
<CAPTION>
                                       1998        1997
                                    ----------   ---------
<S>                                  <C>         <C>
          Long-lived assets
             United States           $  5,949    $  5,847
             Japan                         94         269
             Other                        635       1,055
                                    ----------   ---------
                                     $  6,678    $  7,171
                                    ----------   ---------
                                    ----------   ---------
</TABLE>



NOTE 10:  STOCKHOLDERS' EQUITY

REDEEMABLE PREFERRED STOCK

     On November 10, 1997, the Board of Directors authorized the designation
of 1,000,000 shares of preferred stock, par value $0.10 per share, as Series B
Preferred Stock ("Series B Preferred Stock"). In November 1997, the
Company issued 1,000,000 shares of Series B Preferred Stock for $4.6 million.
Each share is convertible into 4.5825 shares of Common Stock at the discretion
of the holder and accrues a dividend of $0.137475 per share per annum. The
holders of outstanding shares of Series B Preferred Stock are entitled to vote
as a separate class with respect to certain actions (as defined by the preferred
stock agreement) by the Company.  The Company has granted demand registration
rights for the common stock to be issued pursuant to the conversion.

     In addition, the Certificate of Designation of the Series B Convertible
Preferred Stock requires the Company to maintain a listing on a public market
(as defined in the agreement).  In the event of default, the holders of the
Series B Preferred Stock can redeem the preferred stock at a redemption price of
$4.5825 in cash per share plus accrued and unpaid dividends thereon or be
convertible, at the option of the holder, into 6.11 shares of Common Stock.
Effective September 17, 1998 the Company's stock was delisted from The Nasdaq
SmallCap Market.  In October  1998 certain holders of its Series B Preferred
Stock requested redemption and on December 16, 1998 the Company redeemed an
aggregate of 981,997 shares of its Series B Preferred Stock at a price equal to
$4.5825 per share plus accrued and unpaid dividends for an aggregate cash
redemption price of approximately $4.6 million.  A total of 18,003 shares of the
Series B Preferred Stock remain outstanding as of December 31, 1998.

     On August 14, 1998, the Company issued 300,000 shares of the Company's
Series C Convertible Preferred Stock ("Series C Preferred Stock"), par value
$0.10, for an aggregate purchase price of $3,000,000 to Actel Corporation
("Actel").  The Series C Preferred Stock are initially convertible into
2,000,000 shares of the Company's common stock, are entitled to certain
liquidation rights and are redeemable in the event that all of the Company's
remaining outstanding shares of Series B Preferred Stock are redeemed.


                                          38

<PAGE>

COMMON STOCK

     The Company's Certificate of Incorporation was duly amended by a proposal
by the Board of Directors on November 10, 1997 and by vote of the stockholders
at the Annual Meeting of Stockholders on December 15, 1997, to increase
the Company's Common Stock from 40,000,000 shares to 65,000,000 shares of
Common Stock authorized at $0.10 par value. At December 31, 1998 there were
41,425,738 shares of the Company's Common Stock outstanding including 500,000
unissued shares of subscribed stock.

     In October 1997, the Company entered into a $3,250,000 Strategic
Partnership Agreement with Siemens, which principal terms included the delivery
of technology, software, equipment, engineering services, a warrant to purchase
Common Stock, and 500,000 shares of Common Stock. The Company has valued the
Common Stock at $761,000 and the warrant to purchase common stock at $900,000
(see Warrants).  At December 31, 1997, $739,000 cash related to the warrants had
been received and the remaining $161,000 was received during 1998.   At December
31, 1998, subscribed stock represents cash received for this Common Stock, which
has not been issued as of that date.

STOCK COMPENSATION PLANS

     The 1993 Stock Option Plan (the "1993 Plan"), as amended, provides for
3,000,000 shares of Common Stock to be issued under the 1993 Plan.

     The 1996 Stock Option Plan (the "1996 Plan"), as amended, provides for
2,000,000 shares of Common Stock to be issued under the 1996 Plan.

     Under the Company's stock option Plans, incentive stock options granted
must have a per share exercise price of not less than the fair market value per
share at the date of grant. Non-qualified stock options may be granted at such
price as may be determined by the Board of Directors. Dependent upon the Plan,
options generally vest at specific intervals over a three to four year period
and expire eight to ten years after the grant date. In the event of termination,
the Company has the right to cancel any vested options not exercised within 90
days of termination.

     During 1995, stockholders approved a Non-Employee Directors' stock
option plan (the "Director Option Plan") whereby 200,000 shares of Common Stock
have been reserved for issuance. Under the Company's Director Option Plan,
each non-employee director initially elected to the Board of Directors in the
future will be granted an option, upon his or her initial election as a
director, to purchase 15,000 shares of Common Stock. Each non-employee director
is also entitled to receive an option for 7,500 shares on the date of each
Annual Meeting of Stockholders. All options granted under the Director Option 
Plan have or will have an exercise price equal to the fair market value of 
the Common Stock on the date of grant and expire ten years from the date of 
grant (subject to earlier termination in the event the optionee ceases to 
serve as a director of the Company). Under the Director Option Plan, options 
from an Initial Grant vest in full two years after the date of grant. Options 
from an Annual Grant vest one year after the date of grant. The Company
granted 37,500 and 37,500 options to purchase Common Stock at $0.83 to $1.50 and
$1.50 per share to Directors in 1998 and 1997, respectively.

     In July 1997, the Board of Directors authorized the exchange of
outstanding stock options held by all employees for new options with an exercise
price of $0.47 per share, the fair market value of the Common Stock on such
date. In return, participating employees who chose to exchange their options
agreed to accept stock options which will vest on a quarterly basis upon
achievement of certain management goals to be established quarterly for each
such employee, or in any event, in July 1999, should the employee still be
employed by the Company. Options covering a total of 1,744,099 shares were
exchanged under this program. The effect of such exchange reduced the weighted
average exercise price of the outstanding options from $1.79 to $.80 per share.

     In October 1996, the Company agreed to exchange outstanding options
to purchase the Company's Common Stock held by all employees for an equal number
of options with an exercise price of $1.63, the then-current fair market value
of the Company's Common Stock. In return, participating employees who chose
to exchange their options agreed to accept stock options which will vest on
a quarterly basis upon achievement of certain management goals to be
established quarterly for each such employee, or in any event, in October 2000,
should the employee still be employed by the Company. Options covering a total
of 1,040,100 shares were exchanged under this program. The effect of such
exchange reduced the weighted


                                          39
<PAGE>

average exercise price of the outstanding options from $3.24 to $1.90 per share.
The effects of these exchanges in 1997 and 1996 have been included in the
accompanying table as options granted and cancelled.


                                          40

<PAGE>

Options under the employee stock option plans have been granted, exercised and
cancelled as follows:


<TABLE>
<CAPTION>
                                                Options Outstanding
                                             -------------------------
                                                            Weighted-
                                 Shares                      average
                               Available                    exercise
                               for Grant        Shares        price
                             -------------   -----------   -----------
<S>                            <C>            <C>           <C>
     Balance,
     January 1, 1996           1,100,014      2,873,904     $     3.25
     Additional shares
        authorized               750,000             --           0.00
     Granted                  (2,311,120)     2,311,120           2.35
     Exercised                        --       (369,877)          1.53
     Cancelled                 1,517,026     (1,517,026)          5.29
                             -------------   -----------   -----------
     Balance,
     December 31, 1996         1,055,920      3,298,121           1.88
     Granted                  (3,743,196)     3,743,196           0.42
     Exercised                        --       (278,002)          1.37
     Cancelled                 3,360,346     (3,360,346)          1.66
                             -------------   -----------   -----------
     Balance,
     December 31, 1997           673,070      3,402,969           0.68
     Additional shares
        authorized             1,250,000             --           0.00
     Retire 1984 Plan           (586,316)            --             --
     Granted                  (1,722,832)     1,722,832           0.63
     Exercised                        --       (742,539)          0.53
     Cancelled                 1,015,809     (1,015,309)          1.17
                             -------------   -----------   -----------
     Balance,
     December 31, 1998           629,731      3,367,953       $  0.54
                             -------------   -----------   -----------
                             -------------   -----------   -----------
</TABLE>




     The weighted average per share fair value of the stock options granted in
1998, 1997 and 1996 was $0.63, $0.42 and $1.53, respectively. At December 31,
1998, 1997 and 1996, outstanding options under the employees stock option plans
were exercisable for 1,415,333, 1,423,209 and 1,065,835 shares, respectively and
exercisable at weighted-average exercise prices of $.49, $.68 and $1.88,
respectively. All outstanding options are nonqualified options.


                                          41

<PAGE>

The following tables summarize information about stock options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
                                     OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                          -----------------------------------------    -----------------------------
                                       Weighted-avg
                           Number        Remaining    Weighted-avg        Number       Weighted-avg
   Exercise Price        Outstanding     Contractual    Exercise         Exercisable     Exercise
  From          To        at 12/31/98       Life           Price         at 12/31/98        Price
----------  ----------  -------------  -------------  -------------    ------------    -------------
<S>          <C>         <C>           <C>            <C>              <C>             <C>
 $  0.47     $   0.47      1,711,621           7.08        $  0.47       1,393,055        $  0.47
    0.53         0.53      1,524,082           9.96           0.53               0            -
    0.81         1.25         28,250           9.39           0.97           6,221           1.21
    1.50         2.06        104,000           9.10           1.57          16,057           1.67
 -------     --------      ---------                                     ---------        -------
 $  0.47     $   2.06      3,367,953           8.46        $  0.54       1,415,333        $  0.49
 -------     --------      ---------                                     ---------        -------
 -------     --------      ---------                                     ---------        -------
</TABLE>


EMPLOYEE STOCK PURCHASE PLAN

     Through the Company's Employee Stock Purchase Plan, eligible employees
of the Company may purchase Common Stock at the fair market value of the stock
at the beginning or end of each offering period (calendar quarters), whichever
is lower.  Each participant may contribute from 3% to 10% of total compensation,
up to a limit of $25,000 annually.  Additionally, each participant is
prohibited from owning more than 5% of the Company's Common Stock. The Plan was
created in May 1987 with an initial 100,000 shares of Common Stock.  In May 1992
an additional 200,000 shares were authorized, in December 1995, another 200,000
shares were authorized and in May 1998 an additional 200,000 shares of Common
Stock were made available for purchase under this plan, of which 519,848 shares
were issued at December 31, 1998. During 1998, 201,182 shares were purchased for
prices ranging from $0.30 to $1.31 with an average price of $0.50 per share.  At
December 31, 1998, 180,152 shares were reserved for future issuance under the
Purchase Plan.  The fair value of the 1998 awards was not considered
significant.

ADDITIONAL STOCK PLAN INFORMATION

     In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, which establishes financial accounting and reporting standards for
stock-based employee compensation plans. This statement defines a fair value
based method of accounting for an employee stock option of similar equity
instrument. Under this method, compensation costs are measured at the grant date
based on the value of the award and are recognized over the service period,
which is the vesting period.  The Company continues to account for its
stock-based awards using the intrinsic value method in accordance with APB No.
25 and its related interpretations. Had compensation cost for the Company's
various stock option plans been determined consistent with SFAS No. 123, the
Company's net loss and diluted net loss attributable to common stockholders per
share would have been changed to the pro forma amounts indicated below (in
thousands, except net loss attributable to common stockholders per share
amounts):

<TABLE>
<CAPTION>
                                                     December 31,
                                       ----------------------------------------
                                          1998           1997           1996
                                       ----------     ----------     ----------
<S>                                    <C>            <C>            <C>
Net loss attributable     As reported  $  (8,405)     $ (22,725)     $ (21,376)
 to common stockholders   Pro forma       (9,116)       (23,562)       (22,280)


Diluted net loss          As reported      (0.20)         (0.75)         (1.03)
 per share                Pro forma        (0.22)         (0.78)         (1.08)
</TABLE>

                                          42

<PAGE>

     The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1998, 1997 and 1996 respectively; expected
volatility of 157% for 1998, 145% for 1997 and 90% for 1996, risk-free interest
rates of 4.60%, 5.91%, and 6.07% for 1998, 1997, and 1996 respectively, and
expected lives from the grant date of 6.5 years for 1998, and 3.5 years for both
of 1997 and 1996.

WARRANTS

     At December 31, 1998, total warrants outstanding were 3,826,256.  Purchase
price of the securities subject to these warrants range from $.47 to $1.44 and
they expire at various dates through November 2005.

     In November 1997, the Company entered into a Stock Purchase Agreement ("the
Agreement") in connection with the Series B Preferred Stock financing.  Pursuant
to this Agreement, the Company issued warrants to purchase 997,751 shares of
common stock at $1.00 per share.   In January 1998, the warrants expired in
accordance with the Agreement upon approval by the stockholders of an increase
in the Company's authorized common stock and the closing of the common stock
financing contemplated by the Agreement.

     In October 1997, the Company entered into a licensing agreement under which
the Company granted a stock warrant to purchase 9.9% of its outstanding shares
of Common Stock to a strategic partner at an exercise price equal to 80% of the
Market Price of the Company's Common Stock on the trading day immediately prior
to the date of exercise, subject to a minimum exercise price of $1.00 per share.
Market Price is defined as the last trade price for common stock as reported on
the Nasdaq.  In the event that the strategic partners' interest is decreased to
less than 9.9% by future equity offerings, they will have the right to increase
the stock warrant under the same conditions as the equity offering to maintain
its 9.9% interest in the Company. The term of this warrant is for five years and
is exercisable as follows: the first 1/3 shares after 6 months, an additional
1/3 shares after 12 months, and the final 1/3 after 18 months.  The fair value
of the warrants was $900,000 at grant, which have been included in additional
paid-in capital, net of a warrant receivable of $161,000.

     In July 1997, the Board of Directors approved the exchange of Common
Stock warrants and nonqualifying stock options held by certain directors for
new Common Stock warrants to purchase 202,595 shares of Common Stock at an
exercise price of $0.47 per shares, the fair market value of the common stock on
that date of exchange.  The effect of such exchange reduced the weighted
average exercise price of the warrants and nonqualifying options from $1.97 to
$0.47 per share. In November 1997, a director was issued warrants to purchase
7,500 shares of Common Stock at an exercise price of $1.44 per share. In
February 1998, certain directors exercised their warrants for 137,595 shares of
Common Stock.

     In February 1997, the company issued 500,000 warrants at $2.25 per share in
conjunction with the $3,500,000 convertible debentures.  The value of the
warrants was $850,000 and was recorded as a discount to the debentures.  In
August 1997, the 500,000 warrants were exchanged for 350,000 warrants at $0.53
per share.  During 1997, 105,000 warrants were exercised for $56,000.

     During 1996, 59,500 warrants were issued relating to the
subordinated convertible debenture note. No warrants were exercised and all
warrants were subsequently cancelled in 1998.


NOTE 11

EMPLOYEE BENEFIT PLANS

     Through the Company's elective 401(k) savings plan, eligible U.S.
employees of the Company may contribute up to 17.6% of their pre-tax earnings,
subject to current IRS restrictions. Under the plan, the Company may make
discretionary matching contributions up to $1,500 or 25% of an employee's
contributions. The participants vest in the Company's contribution over five
years. Company contributions to this plan were $73,000 in 1998, $161,000 in 1997
and $200,000 in 1996.


                                          43

<PAGE>


NOTE 12: RESTATEMENT

     Subsequent to the issuance of the Company's 1997 consolidated financial
statements, the Company determined that certain transactions recorded in
connection with the $10,000,000 and the $3,500,000 Subordinated Convertible
Debenture Notes and the Siemens License Agreement, were inappropriately
recorded.  As a result the Company's 1996 and 1997 financial statements have
been restated from amounts previously reported to appropriately reflect these
transactions.

$3,500,000 SUBORDINATED CONVERTIBLE DEBENTURE NOTES

     In connection with the February 1997 issuance of the $3,500.000, 6% 
Subordinated Convertible Debentures (the "Debentures"), the company  
determined that portions of the proceeds should have been reflected as a 
beneficial conversion feature of $875,000 and as detachable warrants issued 
in connection with the Debentures of $850,000. The beneficial conversion 
feature and the value of the warrants are then accreted to interest expense 
over the period the debt becomes convertible and the term of the debentures, 
eight and thirty-six months, respectively,

     Additionally, upon conversion of the Debentures in May 1997 to Series A 
Convertible Preferred Stock, (the "Series A Stock"), a debt extinguishment 
loss of $1,048,000 should have been recognized as an extraordinary item for 
the difference between the net carrying amount of the debentures of 
$2,178,000 and the value of the Series A Stock issued of $3,226,000. The 
value of the Series A Stock issued includes a beneficial conversion feature 
of $728,000 recognized at issuance, and reflects accretable beneficial 
conversion discount of $274,000. The beneficial conversion discount is 
accretable to Accumulated Deficit over the period in which the Series A Stock 
becomes convertible.

     In August 1997, 51,972 shares of the Series A Stock, valued at $1,805,000,
were converted to 4,546,928 shares of common stock and the remaining shares were
redeemed for $1,827,000. A preferred dividend of $144,000 was recognized for 
the excess of the redemption price over the carrying amount of the Series A 
Stock.

$10,000,000 SUBORDINATED CONVERTIBLE DEBENTURE NOTES

     In connection with the May 1996 issuance of the $10,000,000, 6%
subordinated Convertible Debenture Notes (the "Notes"), the Company determined
that the $2,500,000 beneficial conversion discount should have been recorded as
an increase to additional paid-in capital, rather than an increase to the
original principle amount of the Notes.

     Additionally, due to the recording of the beneficial conversion discount as
an increase to APICs the conversion of the Notes in 1996 and 1997 should have
reflected aggregate conversions of $4,356,000 ($4,300,000 of the original
principal of the Notes and $56,000 of accrued interest) and $5,998,000
($5,700,000 of the original principal of the Notes and $298,000 of accrued
interest), respectively.

SIEMENS LICENSE AGREEMENT

     In connection with the November 1997 license agreement with Siemens, the
Company determined that warrants issued to purchase 9.9% of the Company's
outstanding stock, under the license agreement, had been undervalued and, as a
result, license revenues were overstated.  The value of the warrants has been
increased from $450,000 to $900,000 and license revenue has been proportionately
decreased.

     A summary of the significant effects of the restatement is as follows (in
thousands except per share amounts):


                                          44

<PAGE>

<TABLE>
<CAPTION>
                                                       1997                          1996
                                          As Previously                 As Previously
                                             Reported      As Restated     Reported      As Restated
                                         ------------------------------ -----------------------------
<S>                                       <C>              <C>          <C>              <C>
AT DECEMBER 31
Additional paid-in capital                    $  72,642      $  73,618      $  55,784     $  57,209
Accumulated deficit                             (77,485)       (78,215)
Total stockholders' deficit                                                     2,569         3,994

FOR THE YEAR ENDED DECEMBER
Product Revenues                                  5,674          5,385
Gross Profit                                      4,889          4,600
Operating Loss                                  (16,831)       (17,120)
Interest expense, net                            (1,360)        (1,371)
Net loss before extraordinary item              (15,076)       (15,384)
Debt extinguishment loss                            -           (1,048)
Net loss                                        (15,076)       (16,432)
Comprehensive loss                              (15,572)       (16,928)
Net loss attributable to common stockholders    (21,995)       (22,725)
Basic and diluted net loss per share
  Loss before extraordinary item                 (0.73)         (0.72)
  Extraordinary item                               -            (0.03)
                                               ----------      --------
  Net loss                                       (0.73)         (0.75)
                                               ----------      --------
                                               ----------      --------
</TABLE>


                                          45


<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of GateField Corporation:

We have audited the accompanying consolidated balance sheets of GateField
Corporation and its subsidiaries at December 31, 1998 and 1997, and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity (deficit), and cash flows for each of the three years in the period ended
December 31, 1998.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. 
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the GateField Corporation and its
subsidiaries at of December 31, 1998 and 1997, and the results of their
operations and comprehensive loss and their cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company's recurring losses from operations, working
capital deficit, and stockholders' deficiency raise substantial doubt about its
ability to continue as a going concern.  Management's plans concerning these
matters are also described in Note 1.  The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 12, the accompanying 1997 and 1996 consolidated financial
statements have been restated.





DELOITTE & TOUCHE, LLP
San Jose, California
February 19, 1999


                                          46

<PAGE>

                            REPORT OF INDEPENDENT AUDITORS
                           ON FINANCIAL STATEMENT SCHEDULE


To the Board of Directors and Stockholders of GateField Corporation:

We have audited the consolidated financial statements of GateField Corporation
and subsidiaries as of December 31, 1998, and for the year then ended, and have
issued our report thereon dated February 19, 1999.  Our audit also included the
financial statement schedule listed in the Index at Item 14(a).  This schedule
is the responsibility of the Company's management.  Our responsibility is to
express an opinion based on our audit. 

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.



/s/ DELOITTE & TOUCHE LLP
-------------------------

Deloitte & Touche LLP

San Jose, California
February 19, 1999


                                          47

<PAGE>

                   SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                 for the years ended December 31, 1998, 1997 and 1996

                                (amounts in thousands)



                        GATEFIELD CORPORATION AND SUBSIDIARIES


<TABLE>
<CAPTION>

                                        Balance at        Additions                       Balance at
                                        Beginning       charged to cost                       End of
Descriptions                            of Period        and expense       Deductions         Period
----------------------------------------------------------------------------------------------------
<S>                                  <C>               <C>               <C>             <C>
Deducted from assets:
Allowance for doubtful accounts
(accounts receivable):

Years ended December 31,

1998                                   $    528          $    225         $   (509)(1)    $    244
                                       --------          --------         ------------    --------
                                       --------          --------         ------------    --------
1997                                   $  1,337          $    169         $   (978)(1)    $    528
                                       --------          --------         ------------    --------
                                       --------          --------         ------------    --------
1996                                   $    296          $  1,386         $   (345)(1)    $  1,337
                                       --------          --------         ------------    --------
                                       --------          --------         ------------    --------
</TABLE>

 



(1)  Write-off of accounts and notes determined to be uncollectable.


                                      48


<PAGE>

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     The information required by this Item is not applicable.


                                       PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by this Item concerning directors of the 
Company is incorporated herein by reference from the section entitled 
"Election of Directors" included in the Company's definitive Proxy Statement 
for the Annual Meeting of Stockholders for the fiscal year ended December 31, 
1998, which will be filed with the Securities and Exchange Commission within 
120 days of the Company's fiscal year end (the "1998 Proxy Statement").  The 
information required by this Item concerning executive officers of the 
Company is included in Part I of this Annual Report on Form 10-K under the 
section captioned "Executive Officers of the Registrant".  The information 
required by this Item concerning compliance with Section 16(a) of the 
Securities Exchange Act of 1934, as amended, is incorporated herein by 
reference from the section entitled "Section 16(a) Beneficial Ownership 
Reporting Compliance" included in the 1998 Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item is incorporated herein by reference
from the sections entitled "Election of Directors" "Compensation of Directors",
"Compensation Committee Interlocks and Insider Participation", "Executive
Compensation", "Employment and Severance Agreements" included in the 1998 Proxy
Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 

     The information required by this Item is incorporated herein by reference
from the section entitled "Beneficial Ownership of Voting Stock" included in the
1998 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is incorporated herein by reference
from the sections entitled "Certain Relationships and Related Transactions",
"Election of Directors" "Compensation of Directors", "Compensation Committee
Interlocks and Insider Participation" and "Executive Compensation", "Employment
and Severance Agreements" included in the 1998 Proxy Statement.


                                       PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a)  The following financial information is incorporated by reference into
          Part II hereof from the Annual Report

               1.   Financial Statements:

                    Report of Independent Auditors


                    Consolidated Balance Sheets at December 31, 1998 and 1997
                    (restated)

                    Consolidated Statements of Operations and Comprehensive Loss
                    for the three years ended December 31, 1998


                                          49

<PAGE>

                    Consolidated Statements of Stockholders' Equity (Deficit)
                    for the three years ended December 31, 1998

                    Consolidated Statements of Cash Flows for the three years
                    ended December 31, 1998

                    Notes to Consolidated Financial Statements

               2.   Financial Statement Schedules:

                    Report of Independent Auditors on Financial Statement
                    Schedule

               Schedule II:   Valuation and Qualifying Accounts

                    All other schedules have been omitted because they are not
                    applicable, not required, or the information required is
                    included in the financial statements or notes thereto.

               3.   Exhibits:

                    The exhibits are listed in the accompanying Index to
                    Exhibits immediately following the signature page.

     (b)  Reports on Form 8-K

               None


                                          50

<PAGE>

                                      SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                                GATEFIELD CORPORATION

Date: April 15, 1999
                                   James B. Boyd
                                   Principal Accounting Officer and
                                   Principal Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below as of April 15, 1999 by the following persons on behalf of
the registrant and in the capacities indicated.

/s/Timothy Saxe                    President, Chief Executive Officer, Chief
---------------                    Operating Officer and Director
Timothy Saxe                       (Principal Executive Officer)


/s/James B. Boyd                   Principal Accounting Officer and Principal
----------------                   Financial Officer
James B. Boyd                      (Principal Accounting Officer and Principal
                                   Financial Officer)


/s/ Michael J. Kucha               Chairman of the Board of Directors
--------------------
Michael J. Kucha


/s/ Horst G. Sandfort              Director
---------------------
Horst G. Sandfort


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<PAGE>

                                  INDEX TO EXHIBITS

Exhibit
Number         Description
------         -----------



2.1       Asset Purchase Agreement dated August 14, 1998, regarding the purchase
          of GateField Corporation's Design Services Business by Actel
          Corporation (incorporated by reference to Exhibit 2.1 to the Company's
          Current Report on Form 8-K filed on August 14, 1998).

3.1       Restated Certificate of Incorporation dated August 28, 1998
          (incorporated by reference to Exhibit 4.3 to the Company's Current
          Report on Form 8-KA dated August 31, 1998).

3.2       Certificate of Correction of Restated Certificate of Incorporation of
          GateField Corporation dated October 20, 1998 (incorporated by
          reference to Exhibit 3.2 to the Company's Quarterly Report on Form
          10-Q for the quarter ended September 30, 1998).

3.3       Certificate of Designations of Preferred Stock of GateField
          Corporation to be Designated Series B Convertible Preferred Stock of
          the Company (incorporated by reference to Exhibit 3.3 to the Company's
          Annual Report on Form 10-K for the year ended December 31, 1997).

3.4       Certificate of Designations of Preferred Stock of GateField
          Corporation to be Designated Series C Convertible Preferred Stock of
          the Company (incorporated by reference to Exhibit 3.3 to the Company's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 1998).

3.5       Bylaws of the Company, as amended (incorporated by reference to
          Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for the
          quarter ended June 30, 1998).

4.1       See Exhibit 3.1 referenced above.

4.2       See Exhibit 3.2 referenced above.

4.3       See Exhibit 3.3 referenced above.

4.4       See Exhibit 3.4 referenced above.

4.5       See Exhibit 10.24 referenced below.

4.6       See Exhibit 10.25 referenced below.


10.1**    1993 Stock Option Plan (incorporated by reference to Exhibit 4.1 to
          the Company's Registration Statement on Form S-8 (File No. 333-42363)
          filed on December 16, 1997).

10.2**    1996 Stock Option Plan (incorporated by reference to Exhibit 4.2 to
          the Company's Registration Statement on Form S-8 (File No. 333-42363)
          filed on July 31, 1998).

10.3**    1995 Stock Option Directors Plan for Non-Employee Directors
          incorporated by reference to Exhibit 4.3 to the Company's Registration
          Statement on Form S-8 (File No. 333-42363) filed on December 16,
          1997).

10.4**    Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.4
          to the Company's Registration Statement on Form S-8 (File No.
          333-42363) filed on July 31, 1998).

10.5**    1999 Stock Option Plan (incorporated by reference to the Company's
          1998 Proxy Statement.


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<PAGE>

10.6**    1999 Employee Stock Purchase Plan (incorporated by reference to the
          Company's 1998 Proxy Statement.

10.7**    Employment, Confidential Information and Invention and Assignment
          Agreement, between the Company and Douglas E. Klint, as amended on
          June 5, 1997 (incorporated by reference to Exhibit 10.6 to the
          Company's Annual Report on Form 10-K for the year ended December 31,
          1997).

10.8**    Employment, Confidential Information and Invention and Assignment
          Agreement, between the Company Stephen A. Flory, as amended on June 5,
          1997 (incorporated by reference to Exhibit 10.7 to the Company's
          Annual Report on Form 10-K for the year ended December 31, 1997).

10.9      Warrant Certificate for the purchase of 50,000 shares of Common Stock,
          dated July 28, 1997, issued to James R. Fiebiger (incorporated by
          reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1997).

10.10     Warrant Certificate for the purchase of 7,500 shares of Common Stock,
          dated November 25, 1997, issued to Benjamin Huberman (incorporated by
          reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1997).

10.11     Common Stock Purchase Warrant, dated August 21, 1997 issued to Halifax
          Fund L.P. (incorporated by reference to Exhibit 10.10 to the Company's
          Annual Report on Form 10-K for the year ended December 31, 1997).

10.12     Common Stock Purchase Warrant, dated August 21, 1997, issued to
          Capital Ventures International (incorporated by reference to Exhibit
          10.11 to the Company's Annual Report on Form 10-K for the year ended
          December 31, 1997).

10.13     Form of Registration Rights Agreement, dated February 13, 1997 between
          the Company and each of Halifax Fund L.P. and Capital Ventures
          International (incorporated by reference to Exhibit 4.19 to the
          Company's Quarterly Report on Form 10-Q for the quarter ended March
          31, 1997).

10.14     Stock Purchase Agreement, dated November 10, 1997, between the
          Company, Idanta Partners Ltd., Dunn Family Trust and Perscilla Faily
          Trust (incorporated by reference to Exhibit 10.13 to the Company's
          Annual Report on Form 10-K for the year ended December 31, 1997).

10.15     Registration Rights Agreement, dated November 10, 1997, between the
          Company, Idanta Partners Ltd., Dunn Family Trust and Perscilla Faily
          Trust (incorporated by reference to Exhibit 10.14 to the Company's
          Annual Report on Form 10-K for the year ended December 31, 1997).

10.16     Credit Loan and Security Agreement, entered into at January 6, 1997,
          between the Company and Coast Business Credit, a division of Southern
          Pacific Thrift and Loan Association (incorporated by reference to
          Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
          ended December 31, 1996).

10.17     Lease, dated March 6, 1992, between the Company and Renco Equities IV,
          relating to the premises at 47100 Bayside Parkway, Fremont, California
          (incorporated by reference to Exhibit 10.16 to the Company's Annual
          Report on Form 10-K for the year ended December 31, 1997).

10.18     Sub-Lease Agreement, dated October 27, 1997, between the Company and
          Mattson Technology, relating to the premises at 47100 Bayside Parkway,
          Fremont, California (incorporated by reference to Exhibit 10.17 to the
          Company's Annual Report on Form 10-K for the year ended December 31,
          1997).

10.19     SICAN/GateField Technology Agreement, dated September 23, 1993,
          between SICAN G.m.b.H. and the Company (incorporated by reference to
          Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
          ended December 31, 1997).


                                          53

<PAGE>

10.20     License Agreement, dated October 22, 1997, between the Company and
          Siemens Aktiengesellschaft (incorporated by reference to Exhibit 10.29
          to the Company's Current Report on Form 8-K dated November 14, 1997).

10.21     Asset Purchase Agreement, dated April 14, 1997, between the Company
          and IKOS Systems, Inc., regarding the purchase of the Company's
          LightSpeed product family by IKOS Systems, Inc. (incorporated by
          reference to  Exhibit 10.26 to the Company's Current Report on Form
          8-K dated April 15, 1997).

10.22     Asset Purchase Agreement, dated August 18, 1997, between the Company
          and IKOS Systems, Inc., regarding the purchase of the Company's XP and
          PXP hardware fault simulation product business by IKOS Systems, Inc.
          (incorporated by reference to Exhibit 10.27 to the Company's Current
          Report on 8-K, dated September 5, 1997).

10.23     Asset Purchase Agreement, dated August 20, 1997, between the Company
          and Test Systems Strategies, Inc., regarding the purchase of the
          Company's TDX software fault simulation and test business
          (incorporated by reference to Exhibit 10.28 to the Company's Current
          Report on Form 8-K dated September 5, 1997).

10.24     Purchase Agreement, dated October 31, 1997, between the Company, Zycad
          Japan (GateField) KK and Zycad TSS Inc., regarding the purchase of the
          maintenance business (incorporated by reference to Exhibit 10.24 to
          the Company's Annual Report on Form 10-K for the year ended December
          31, 1997).

10.25     Series C Preferred Stock Purchase Agreement dated August 14, 1998
          between GateField Corporation and Actel Corporation (incorporated by
          reference to Exhibit 4.1 to the Company's Current Report on Form 8-K A
          dated August 31, 1998).

10.26     Registration Rights Agreement dated August 14, 1998 between GateField
          Corporation and Actel Corporation (incorporated by reference to
          Exhibit 4.2 to the Company's Current Report on Form 8-K A dated August
          31, 1998).

10.27**   Severance Agreement and General Release of All Claims, dated September
          30, 1997, between the Company and Phillips W. Smith (incorporated by
          reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K
          for the year ended December 31, 1997).

10.28     Product Marketing Agreement, dated August 14, 1998, between the
          Company and Actel Corporation (incorporated by reference to Exhibit
          10.24 to the Company's Quarterly Report on Form 10-Q for the quarter
          ended September 30, 1998).

10.29     License Agreement, dated August 14, 1998, between the Company and
          Actel Corporation (incorporated by reference to Exhibit 10.25 to the
          Company's Quarterly Report on Form 10-Q for the quarter ended
          September 30, 1998).

10.30     License Agreement dated July 31, 1998 between GateField Corporation
          and Rohm Co., Ltd. (incorporated by reference to Exhibit 10.1 to the
          Company's Current Report on Form 8-K filed on August 14, 1998).

10.31     Agreement for Wafer Production and Testing between GateField
          Corporation and Siemens Aktiengesellschaft (incorporated by reference
          to Exhibit 99.3 to the Company's Current Report on Form 8-KA dated
          August 31, 1998).

10.32**   Severance Agreement and General Release of All Claims, dated August
          18, 1998, between the Company and Stephen A. Flory. 

13.1      Incorporated by reference from Exhibits to Annual Report on Form 10-K
          for the fiscal year ended December 31, 1998.


                                          54

<PAGE>

21.1      Subsidiaries of the Registrant.

23.1      Consent of Independent Auditors, Deloitte & Touche LLP.

27.1      Financial Data Schedule.




-----------------------------
**             Management contract or compensation plan or arrangement required
               to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
     
               
                                      55